How to Determine if a Deal is a Deal or Not? | REIal Talk | The Freedom Show | EP.88

Foreign. Hi, guys. Welcome back to another episode on Real Talk, which is a podcast that was created by investors for real estate investors. Today I'm here with Steve Maloney, our VP in acquisitions and renovations also has a little bit of Steve, start them in there with a TV commercial. And I'm Caitlin. I'm the marketing director here with the Freedom family of companies. And today we're going to be talking about how to assess a property that you are acquiring and how to determine if a deal is a deal or not for you. So if you watch the vlog, you may have a little bit of back information already and may know a little bit, but we're just going to kind of recap that a little bit for those who are maybe just listening to the podcast. So one of the first things that we talked about is, you know, you are getting started in real estate. You aren't sure exactly what to do. Where do you start when you are looking at acquiring a property?

Sure. Numbers, Numbers. Numbers.

Right, Right.

So, yeah. So we're gathering information about the property. We're trying to figure out a can we make this a deal or not? Usually it means are you getting what you want as the seller and are we able to make a profit on the back end once we renovate the property? So by doing that, we're looking at your asking price versus what the comparables are in the neighborhood. So what we think that after renovation, value is. And then we put the numbers together and see if there's a little bit of a margin for us as a company to make money.

Perfect. Now, one of the other things that we talked about when you are looking at acquiring a property, what kind of things are you looking for?

Yeah. So again, we just go back to the numbers when we're comping a property or are you just saying picking up a property in general?

Let's do in general.

Yeah. In general, we just want to make sure that the property, A, is not on some type of nuisance list or anything like that. That's going to create a lot of red tape for us. And B, does the margins are the margins there once we renovate the property so that we as a company can make a little bit of money.

Perfect. Okay, cool. So now when you are. You've talked about numbers a lot. Where. What's the first number you look at and kind of where do you go from there?

Sure. So that life cycle is. We get a hold of you about selling your property, just like we say on our commercials. Right. And then we ask you pretty much what Your expectation is of where you want to be when you're selling the property. At that point, we go back and we pull some comps, the comparables, and, you know, we're comparing apples to apples, oranges to oranges, and we see what our ARV is going to be once we're complete with our renovation. If that renovation number and that marginal spread from our after renovation value is there, then we have a possible deal. And at that point, we're going to try to set up a confirmation walk.

Okay. And you base that kind of based on what the seller is asking for, Correct?

Correct.

Okay, cool.

Yeah.

So now when you get to that point, you're setting up an appointment with the seller. What does that look like?

Yeah. So usually, like you said, we're trying to get to where you want to be. We want to be able to offer you as much as we can. And really, we talked about numbers. It's all numbers. So I can just say, hey, Caitlin, your house qualifies for this much. So. And what that is is the after renovation costs minus our renovation estimate. That's what's going to leave that number there for you if that works out. And you say, yeah, that's good. And we're going to do that confirmation walk. At that point. We're just trying to verify all the information that you gave us.

Okay, so now when you are doing the property walk, is there anything and specific that you are like, you absolutely look at every single time?

Yeah. I mean, so we have our signature series product. Right. That we put out on the market. So we've got to make sure that we're able to do that. So as far as those are all your cosmetic deals, but we're also checking your H vac system, making sure that it is new, because you told me it was on the phone, or that your roof is. Is newer because you said so. So we want to make sure. We're just confirming everything. Other than that, one of the big issues that we run in, and this is usually when the property's vacant, is how are our utility services? Because again, if I get into a property and the water's been off for six years because it's been sitting vacant, that could lead to a host of problems or issues going forward with our renovation process. So that's going to affect those numbers that we talked about?

Yeah, absolutely. So now when you are putting all of those numbers together, I think we've talked about it maybe in a previous podcast with either you or Jen, our rehab manager, I believe, and we're Talking about, you know, kind of shop around, you know, different home improvement stores, whether it's Lowe's, Home Depot, what have you, to kind of get an idea of what products you want to put in there. That way you kind of have that price in mind. Do you have any kind of advice on that at all?

Yeah, I would say create your product, so to speak. So that way, you know, every time. And it just becomes really easy for you to look at a property and determine what your renovation estimate's going to be. So if I'm going to do luxury vinyl plank in all of my common areas and then carpet in my bedrooms, which flooring is one of your largest costs? You should know that going in. If you're changing that every property, that's just going to make it more difficult on you because then you're on an as is basis. But again, knowing those things going into it, knowing if you're doing new cabinets every time, what kind of countertops you are. So you have that, that product, so to speak. You know, you have that renovation budget already in your mind.

Cool.

And then get some contractors, right? They do all the work. So shout out to the contractors.

Now, are there any other numbers that you factor in? You know, we've talked about the acquisition cost, the renovation costs. Are there any. Is there anything else that you would.

Consider for sure, your length of your renovation? Because if I buy your property from you and it's going to take me one month to do it and then be able to sell it, obviously that's a shorter holding cost for me. If that property is one of those ones we talked about and it was vacant for a while, that may be a three or four month project.

Okay.

That's going to be. I have to carry that note while I own it. So that cost has to go up and then, you know, you're opening up a whole nother can. If you're talking about where am I getting the money for this?

Right, right.

I know you've done plenty of things with private lenders and stuff like that. So at that point you're just, you know, that's how those numbers start to work. And hopefully you have a good system put in place. You know, shout out to Flint for our system.

Yeah. Okay. So it kind of. So for someone who is maybe just getting started in this, kind of getting their head wrapped around everything, maybe a good place would start is maybe having some lenders kind of lined up. That way you have a few to pick from and you have options. Find the property, see if the initial Deal will work for you. And if that. If you're able to give them what they're asking based on research you've done, once you've done and walks the property and see what exactly needs done. Those are kind of. That's kind of the pieces that you need. And then you can compile all that together and whatever calculator you use and then that will essentially tell you kind of if it will work for you or not.

Yeah, yeah, that's. That's most of it. The secret sauce that wasn't in there and it's as important as lining up your lenders is making sure that you have contracting crews that can actually do the work.

Yeah.

Unless you are one of those people that can do it all yourself and at that point make sure you have plenty of holding costs money put aside.

Yeah.

It's going to take you a lot longer than these crews. But yeah, you have to have the people that do the work. Otherwise you just have a property.

Right.

We see that a lot now.

How do you feel about if someone was, you know, going to acquire property and they're going to walk, what is your opinion on them maybe taking a contractor with them to get like kind of like a second eye on it?

Highly recommend it.

Okay.

Or you pay a project management company like ours, Bulldog Renovations. Right.

Yeah, absolutely.

So you pay us to go in there and take care of that part for you.

Cool. Okay, perfect. So now we've kind of. We've talked about pretty much the entire process. Is there anything that we didn't mention that you can think of? Maybe there's any kind of work that's done prior or maybe after? How does that look?

Yeah. So another big part of that is your title company. So making sure your closings are all set up and you have to protect yourself when you're acquiring these properties. So having a great relationship with a title company is huge. I need a T shirt that has all my companies that are. But yes. So you're going to make sure that you're protected because again, this is probably one of the largest investments you're going to make.

Yeah, absolutely. And that was a good. I'm glad you brought up the contractor piece because if you, you know, you acquire a property and then you're waiting at that point after you've purchased it to then find a contractor that's delaying your project. And it can sometimes take a while to find someone to do the work for you.

Yeah. And that relationship. Huge because.

Yeah.

In your mind as the investor, you may be thinking, I'M going to be paying X amount of dollars for this renovation, but the people that are actually doing the work are saying, no, it's going to be this much. Yeah, that affects your numbers. And again, go back. It's the numbers. Right. That's how it makes you a deal or it doesn't. So have that relationship. So you either A, know exactly what your contractor is going to be charging you so you can put those numbers together, or B, like you suggested, maybe have them with you during a renovation walk.

Yeah. So now that reminded me of another question that's not on here. So I apologize. But so when you are, you know, you're putting all these numbers together, sometimes the property is occupied, so you can't quite see absolutely everything or you may not be able to see certain things like the H VAC system or anything. Do you put in kind of like a buffer for that budget or what do you do in an instance like that?

Yeah, usually you can get to all of those big ticket items even if it is occupied. Again, taking a look at how that property is being maintained, especially if it is a renter, and we talked about the delicacies of that situation. If it is something like that, you want to know in your head, like, is this going to be a troublesome set out? You know, if your, if your goal is to like, hey, we're going to have to move them out so that we can do our renovation so we can sell it to make that margin that we planned on. If you're going to do that, you want to look at that and like, were they taking care of the place then maybe they will go peacefully. And if not, there could be a little bit extra headache in that as well.

Yeah, that's a really good point. If you, we touched on it a little bit in the vlog. So if you're buying a property that is occupied, it could, whether that is, you know, the owner occupied or tenant occupied, you have to kind of figure that out. Usually if it's owner occupied, they usually leave within 30 days or sooner. They're usually needing to get out. But if it's a resident type situation and it's rented, you have to factor that in. Especially if they're in a lease, you may have to honor that lease until it ends. If it's on a month to month basis, you have a little bit more leeway there. So you have to also consider that when you are analyzing the whole property and adding it onto that rehab time, for sure.

Yep. And that affects your number. So again, that system Having that in place, hours takes that into consideration. You know, if there's a lease and you still got six months, then that holding time, those holding costs are going to be in there. Yeah, same thing. You know, most of those are going to be that 30 to 45 days before they're out regardless. So that project's not starting for at least that.

Yeah.

So yes, all of those are number affecting variables.

Yeah, I'm glad you brought that up. That was an excellent point to bring up. My last question that I can think of as of right now, which we've already again, have kind of touched on it, is how do you plan and budget accordingly? So I guess to further that is if this was someone who's just getting started or maybe they've done one and it didn't quite go how they wanted, what kind of advice would you give them while they're doing the planning process and analyzing the deal?

Yeah, I think if we go back to it, that secret sauce is the renovation. Right. So that's usually where we see the trip up for other investors that are trying to do it. So making sure that you have that relationship there so that, you know, A, your renovation is going to be done on the budget that you were expecting and B, it's going to be done on the timeframe that you thought. Yeah, if you don't have that, then you're really setting yourself up for failure.

Yeah, yeah. There. I think there was actually a podcast or vlog that we did on your first investment, I think was actually the title and it wasn't with you, it was with someone else on the team. But they were like, you know, I didn't know what I was doing. I just kind of went in and I accidentally bought it and luckily it worked out for them. It wasn't a huge rehab, they bought it sight unseen. But it just kind of adds in, you know, you never know what's going to happen.

Right. Yeah. We can plan as well as we train. That's what you have to do.

Right.

You have to have be planned out as well as you can and be prepared. And there's always. There's still a couple of things that could come up.

Right.

We're continually setting new processes in for our renovations team as we acquire properties now for the last several years. So there's always something that comes up and we go, hey, we need to maybe try to plan for that next time.

Oh, yeah, and that's something too. Like you said, we've been doing this for years now and it's always there's. Always areas to improve and work on. So there's no one perfect way. Each property is unique and you know, we may factor in different numbers than what someone else would. You know, that's like going back to shopping around at home improvement stores. You know, figure out what kind of products you want and the pricing of those. That way you can budget that way.

Absolutely. And everybody's spread that makes them. A deal is going to be different. Right, Right. So if you're a smaller company or just a single investor, you may not need the margins that a big company like us needs. So you need to know your numbers.

Yeah, absolutely. Perfect. All right, well, that's all that I have. Can you think of anything else that you maybe want to throw out there?

No. No.

Good luck. Yes. And if you guys have any questions too, please don't hesitate to ask. We'll be more than happy to jump on a phone call with you guys or put it in the comments below. Don't forget to subscribe so you don't miss any of our future updates and podcast episodes. We always like to end these with Invest Smart, Live Happy. Bye, guys.

Awesome.

Perfect.

Good, Good.

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