Walking Through A Deal Start To End | REIal Talk | EP. 57

Foreign. Hey, everybody. Welcome back for another episode of Real Talk. That's Real Talk for Real Estate investors podcast number 57. Today I'm joined by Mark Woodring. I'm Chris Sonnino. And today we're talking about just a deal in general. Walking it through from start. Well, well, pre start right from the acquisition end of it, all the way through disposition and the closing of the property, getting investors set up for PM services. So, Mark, in our vlog, we briefly touched on like the prospective buyer will be investor will be receiving an email from us with some marketing material. Can you give us a little bit of detail of how we get to that stage, how we get to a point where that data, that package, what we call the property presentation that's put together and how we come to determine how that's how that's put together and presented?

Yeah, sure, absolutely. So for some of our new investors and some that have been with us for a while do know that Freedom Real Estate is a family company. So inside that, we have our own acquisitions teams. So for that, our acquisition teams are going to be shopping in neighborhoods where we have other rentals. You know, I know that you're a little bit later in the sales cycle, but I don't think that people realize that some of this information like you alluded to, we need to come and bother you before we even maybe make an offer on acquiring that property. So, you know, so we're shopping in the neighborhoods. We're looking for potential turnkeys to purchase. Then our rehab crews are going to go in and take a look at how much work it needs. And is this something that we can purchase, do the rehab and turn out a good quality product, I guess, for our investors. And so with that, you know, the realtors that are in the office, we're all looking at each other's ARV and comparables to make sure that we're all on the same page, that we think that that property is, is priced accordingly. Then, of course, we're also making sure that, you know, it's a rentable area. And so that's where again, we come in and ask you and your team, you know, what are your thoughts? You know, how quickly could we get that rented? Are we right with our rent numbers.

You know, and have you, you know.

Take a look at that? So then we acquire the property and then we work through title and we make sure that we have a clean title on the property so that when we do eventually sell that to our investors, that they're getting a clean title on There on their, no problems with their, the deed on the house. So then our marketing team, they're going to take a look at all the numbers that we've put together and we're going to have things like the cap rate and the cash on cash, what your monthly cash flow is, maybe some of the expenses that again, I know that your team contributes as far as like maybe our vacancy rate, maintenance rates, things like that Capex stuff. Stuff that you know, when our investors are taking a look at the numbers, they can make a decision on that property.

Right? Yeah, yeah, There's a lot that goes in that, a lot of different people involved in that process. And as you said, like we cut, we double check each other's comps a little bit and then expectations on rehab and timeline. And I know internally we also calculate like some holding costs and things like that when we're generating that presentation to make sure that the projection, which the property presentation is a projected position, that the projection on that presentation is as accurate as possible based on a performing market. There is some room for error there. I mean there, there's. They're not always perfect, but we do everything we can to mitigate, make them as accurate as possible. So we always ask our investors, especially if they're experienced, to do their due diligence, run the numbers themselves. I think you, I think on the property presentation even we even share our comps like hey, these are the comparables that we, we pulled.

We, I think that we used to do that but sometimes like when we acquire these properties, the market is moving so quickly that the comps used may, may be older dated and we may be able to even have a better value for our investors. So you know, just by looking at that, we know that we're safe with that ARV Again, obviously appraisers always have their different opinions and I believe you and I actually talked about that in one of our other podcasts. But I would say that, I would say that a high percent of time that we're right on the money.

Right.

If not, if not, you know, not charging enough.

Well, I mean we joke about that but I mean the reality is like as you said, the market moves so much. Like we'll set. I always go back to that property on east in Monroe. Yeah, because that one, I know that that owner got a killer deal because by time we went to rent it, the market had increased in his favor and we, he's already under contract. So it's not like we can. Oh wait, just kidding. Let's change the price like we rented it for, I think $500 combined over market, over what we originally comped it.

Sure.

So, I mean, the owner got a bunch of positive cash flow and extra equity in the property right off the rip. So there's some wins. There's definitely some wins in there.

Definitely. And I think that there's, and I was actually talking about this with the investor just a few days ago about how these markets are moving so quickly that when you purchase a property there in years, that whole neighborhood may transform. And so because there's a lot of other companies that are out there and individuals that are buying it and so just making these neighborhoods better that we're currently shopping in. So I don't think that there's as much risk in the Cincinnati and Dayton markets because it's such a stable market with just big growth in some pockets, slow growth, but just overall growth.

Right. Well, and then the other thing that we take into account, I know you pay especially close attention to the rental market too, but in a market like Dayton where we have what almost, I think it's like, I think the recent poll I saw is almost 5,000 realtors listed on the MLS in Dayton. There's only like a few thousand houses on the market, which means that it's very much a rental, rental pole market right now. So for investors buying in our market, it's a great time to do it. So we take that into account when we're trying to kind of gauge with this moving target is going to be in three months. That's the first step from there. How do we get the information to our clients and our potential buyers?

Yeah, and you had, you had mentioned this earlier as well. So then, you know, we're, we're inviting our investors to make referrals and refer people out to us and we're going to send out emails, we want to send out emails and give out as much information as we can whether what's coming available, what's currently available. We had touched on it in the vlog about the difference between a cash purchase and a finance ready purchase. A cash purchase can be at any time that we acquire it because like we had just mentioned, we bought it, we know what we're going to sell it for, we know how much it'll cost to do the rehab. In theory, you could buy it right then and we'll still do the rehab for you. So sometimes that works for people that have a 1031 exchange or they have to get rid of the money, it works for them because fine, I need to buy it right now. We'll do the rehab in time. But probably the majority of our investors are going to finance properties just because again, interest rates are still really good. And in fact, we had actually talked about that earlier as well, is that, you know, it has to be able to appraise. You know, you have to. You have to, you know, go through the steps like as if you were buying your primary residence. So the rehab has to be complete or very close to it, and then the financing option can happen. So. So yeah, so the first thing is, is that you're going to get that email with all the information. You're going to take a look at the different properties, whether it's cash or finance. And then also a deeper dive is what kind of property it is. We send out the different properties. Like, is it already rented? Is it an instant cash flow series? Is this a property that maybe you can put a couple dollars into the rehab and save yourself equity in the property, like an equity advance series? And then, of course, our signature series is the complete finished product where we've purchased it, we've rehabbed it, and it's ready to have inspections done and walk through that process.

Yeah, so you mentioned one thing there that I kind of want to circle back on, but we talk about finance property, the clients purchasing the property and financing it. That changes the dynamic of the closing. Not the closing process initially, but the contract process a little bit. Because normally, like, if a client's buying cash or maybe not doing a specific type of loan where there's going to be additional things that have to happen with the inspection process or something like that, like, we don't do punchless repairs until after we have the inspection report. That's just an operational choice. So that way we can make sure we can maximize our internal processes to be able to make sure that everything's getting done together. So we're not going back five, six, seven, eight times to do repairs. You had mentioned that previously. I think it was offline. But that's a big deal, right? I mean, we go through a financing process and, you know, our rehab teams waiting on the inspection report so that they can determine what repairs are getting done, that changes how the rehab timeline effectively works. So sometimes, you know, there'll be a closing and punch list is still happening. And, you know, we had to set the expectation for the buyers that, hey, well, we're closing on it. We're still clear to close, funding will still happen, but we're going to still be there for another week. You know, we have to do a couple things that you had pointed out in your inspection report. All of that in effort to get the appraisal where he needs to go or wherever it needs to do so it can close. So that's, that's a good point to know. I think we run into that a little bit sometimes with turnkey properties because some we market these properties mid stride. We don't always wait until the project's 100% complete before we try to line up buyers. So I think that's important when making your investment decision is knowing what stage of the process is in and then what to expect moving forward. Sure.

No, that's a great point. In fact, I have that conversation with investors more times than not is that they ask, you know, when it's finance ready, like is, is it done? And the answer is it's probably 90 to 95% done. Like in, in there are two crews of rehab, right. So there's the, the main rehab crews and we have several of those. They're going to go out and do the demolition, the drywall, the flooring, the kitchens, the bath, they're going to do 90% of that. And then you're correct, there's probably about 5 or 10% of like finishing work. And that's the punch list stuff. And so we want our investors that are watching this to realize that, yes, we do a quality inspection report. So we walk through the house and take a look at all of the things that still need to be addressed. And then we invite our investors, if you'd like to have a third party inspection done, you can order that as well. And then we're going to take both lists, put them together. So we only have to send that punch crew out once, one time, do our list not to do that list. Because again, even if you had a brand new built home, you pay an inspector to go find things wrong with it, they're going to go find things wrong with it. So we wait until that's done, put them together and get that punch list. And you're correct, sometimes there's parts that need to be ordered, things like that that may not be available. We don't want that to hold up the closing because, and I know that we'll get to this later here in the podcast, once you close in the property, you've got some work to do with, with, with IPM independence, property management, just to, you know, get it going. So don't worry about, like, am I going to fix that window sill? Yeah, it'll get fixed. Let's keep the ball moving so that we can get you cash flowing as quickly as possible. Which, you know, ultimately I think is the goal for the majority of our investors is getting that cash flow right out of the gates. You know, whatever it takes to get there as quickly as possible.

Yeah, absolutely. So a couple ways that we. You can find properties, you can find them on our website. I think there's a few links that you can go to on there, see what's available. You'll check out the pro formas too, if you're interested. There's contact information on the webpage. It'll put you in touch with the team. Eventually you'll be talking to Mark who will kind of walk you through. He's pretty familiar with the properties as well, so he'll be able to walk you through specifics. Interested to get under contract. You say, hey, I might be interested in buying this property. Mark's your guy, right? I'll get you set up. And so let's say, Mark, I'm an investor and I'm ready to go. And I love this one, 23 Main Street. I've heard about all the things on Main street, but I'm going to take a risk and I'm going to go ahead and buy a property on Main street anyway. What you got for me, Mark? What's this next step?

Yeah, absolutely. So probably, you know, to queue to get to me. You're probably going to see that marketing email come out. You're going to click on that you're interested in the property. That's going to trigger an email saying that you are and I'm going to call you and or email you back and say, you know, yes. Would you like to talk about this property some more? The things that I would want for you, Chris, as an investor to do is be ready, you know, so like if you want a contract to purchase, I may be giving you a contract to purchase. And I know we build VIP lines and things like that as well. So there's a lot of investors that are looking and supplies limited.

But.

You know, I want to make sure you're ready to go. It doesn't mean that like you have the particular lender that you want, but you know that you have all the stuff ready to go. Because again, when we're talking about speed to closing because you want to start cash flowing, things that can slow that down is if you're not ready. So number one, be ready. I mean, have your financing ready to go, all those things. And so, yep, that'll be the first Thing. So then we'll send you a purchase contract. You know, read that over. It's electronic signatures so you can sign it and get it back to us quickly. Again, we want you to be ready to go and get this back. And then the next steps are all the introductions to the entire team. So introducing our transaction coordinators. They're the ones that are going to be sending you the contracts. They're the ones that are going to work with you on title earnest money. The transaction coordinators are going to help facilitate, in essence, the entire beginning to end. They're going to work with schedule inspections. They're going to be the middleman between the investor and the rehab crew that's going to make the repairs. On those punch lists.

There'S going to.

Be the introductions to your team. You know, I mean, introductions to property management. Like, what questions do you have about the area? What questions do you have about just you as the manager? So there's all those introductions. And then along the way from this whole beginning to end, you're going to meet the entire crew and everybody that is in line with you, the investor, to get to the closing table, your entire team working to get that tenant in place and ready to go, Right?

Absolutely. Yeah. So, yeah, it's a pretty thorough process. So one of the things sometimes you said when you send contracts out, we didn't really touch on it, but earnest money may sometimes be required. I don't know if Haniel will know better than me, but is it always required or is it one of those things where we have five people interested and we just want to make sure you're serious and are you ready to go? Is that one of the things you kind of hinted at with make sure you had everything in line?

Yeah, absolutely. So with earnest money, as far as, like, the legality in Ohio, earnest money is not required, but it does show a good faith that you are ready, right? That you have your cash set aside, you're ready to get to the closing table. I think in all the years that I've been here at Freedom Real Estate Group, we've never seen anybody's earnest money held for no reason.

Right?

So, like, earnest money is one of those ones that if you're doing your part on the contract and we're doing our part on the contract, there are, you know, contingencies that have to be met. You know, like if you get through the inspections and you're just not pleased with, you know, the inspection report or what's going to be repaired, of course you have the opportunity to decline, terminate the contract with the appraisal. Same thing. You know, if the appraisal comes in at value, we're hoping that you can see through that because again, appraisers aren't perfect, we're not perfect, but we have a really good product. We know that your team has worked hard on getting those rent numbers. We're hoping that you may push through that and just, you know, be prepared to maybe bring a couple extra bucks to closing, you know, but if. If you get to that point and you're like, no, I'm not comfortable doing that. Okay, release of contract. You know, I mean, so there's so many contingencies that have to be met. And I know we've talked about it like, you know, looking at it like your primary residence, but at the end of the day, please keep in mind that this is going to be a money vehicle for you that we talked about. In this market, things will go up, rents will go up, the value of your house will go up. So all these things just try to keep in mind for the future, not what's happening right now. Try to think five years from now in the position that you'll be, right, the property, cash flowing, building your portfolio, all those things, wouldn't you say?

Yeah, absolutely. No, that's exactly what I wanted to have shared here. You mentioned that we, you know, the introduction email goes out to Independence Property Management. I'm one of two other, two other people from my company that are cc'd on that, on that email thread introducing our Freedom client to ipm, our property management company. And they usually happens, I think it's two to three weeks before closing just to kind of start, get the conversations going. We cannot legally take over management of the property until it's closed. However, the benefit of purchasing properties from Freedom Real Estate Group is that because we're one of the companies, as part of this, this family of companies, we're already managing the asset. So the transition's pretty seamless. The only time it could be a little bit bumpy is if it's still heavy in the rehab. So I know sometimes we have cash buyers. We love cash buyers. Right on the realtor end of it, like, yeah, absolutely, we all have cash buyers, but sometimes you buy a property and it's like mid rehab, right? We're not at that 90%, you know, we're still holding the property and you're still on the deal with vacancy during the rest of the rehab process. And that could take some time, but if the property's done right we're at punch and we're going through closing. Normally the time the property is wrapping up punch list is about the time it's closing and it's going to hand it us. For leasing, they're pretty much like within a couple of days conjunction. Like we're marketing a property the same time it closes every now and then. It's a slam dunk for our client where its property's been done. Inspection came out perfect, repairs were done really quick. We put it on the market. I rented in two days and they're not even closed yet. That means that when they close they're going to have rent coming in that next month, that next month cycle. That's obviously ideal. That's perfect situation for us. It's a slant. It's. It's good for our company freedom, it's good for ipm, makes the tenants happy because they don't have to worry about, you know, additional inspections or people come through the property after they've moved in. It's a pretty seamless process when the intro evil comes out, like I said, we have a conversation. I share my contract. Usually clients want to get on the phone with me. We have a similar conversation that you do, Mark. We said to set some expectations of what they can expect with ipm. I reiterate some things that you say. We add some things of our own but walk through the contract if the client needs to do that. Not too many of those. We have a lot of experienced buyers that are familiar with property management agreements and what they include. And then a member of our team that they'll get introduced to will get the contract set up. We'll get it signed, I'll sign it myself as that property hands off, we get it moving, we'll have it listed for rent. Our marketing department will take professional photos of it, of the property. So that way we're using the top quality marketing material for our leasing efforts. And you know, we'll do our best to get a good tenant place and get that property cash flowing quickly from there. You know, the owners live with us and IPM until time they want to buy another property. At that point they're also getting the marketing emails. Was it monthly or every two months or something? So where they're currently, you guys are going to be fed new properties to buy and look at and then we'll just recycle you right back over to Mark again. So the whole process over.

Right on. I know that one of the questions that the investors always ask me is, you know, can we start to market the property sooner in the process. One of the answers that I tell them is like that we want to make sure that you're through the inspections, through the rehab. Because I know that as a property manager, the last thing you're trying to do is bother these new tenants and be having work performed in the house and having to get heads up and all this stuff, right?

Well, yeah, well, you have to think about it. I mean, a sales contract has an inspection. The inspection process usually reaps repairs. So then there's people going in, out doing repairs and then everything's good to go. Then it's getting an appraisal. So they're interrupted at least three times in a two week period. Two to three week period. Right. And that's if everything's smooth. Right. The other thing is that inspectors are usually good, right? They just say, hey, I'm here just inspecting, I'm gonna take some photos. They'll even ask the resident like, oh, you're having any issues with anything? Even though I don't think they're supposed to do that. But they do that. Appraisers, on the other hand, they've in the past said, hey, I'm an appraiser. You know, I mean, I'm here representing the new owner, the new potential owner. That causes problems with the tenants because all of a sudden they think that their housing is jeopardized. Right? Well, I just rented this property, I just moved in, have my stuff still in boxes. Right. So that's a little bit difficult for us to navigate, but again, that's for us to navigate on your behalf as potential buyers. With us, it's almost, almost nice to do that sometimes because, you know, usually we've read the appraisal status, we're pretty close to the end of contract period. However, like as you said, the timing on that stuff has to be good. Like we really want to be through a majority of that before we place a tenant. Now we can pre market, we can, we can say, hey, look, this property is ready to be rented, but not allow like in person showings without like with one of us escorting them or you know, available for move in after the appraisal is done. It's just property has to be finished. We have to have all the repairs done. I don't, we don't want to, obviously we don't want to move in tenants when the property is not 100% rent ready too. So all of those factors play into the timing of when a property goes to market. As far as we're Concerned. But as we said at the beginning of this, the market is hopping. So properties, properties that have been listed recently are moving pretty quickly. I know we have some properties that are moving a little bit slower as we were coming out of the winter months, but it's back to smooth rolling. I think we rent three to four properties a week, so.

Yeah, yeah, no, absolutely. So, I mean, so, you know, when we're talking to our investors here, you know, acquisition, rehab, marketing, emails going out, you know, phone calls, emails back and forth, contract being sent, contract being signed and sent back, introduction to all the team players that are going to, you know, take us through inspections, appraisals, closings. Seems all kind of seamless. And then of course, the handoff to the most important part is property management and getting that cash flow.

Yeah, yeah, There's a lot that goes into it, but as you said, you treat it as if it's a personal home purchase until what, about halfway through 70, 60% through the contract period. At that point, then you're figuring out, okay, what repairs are happening, what needs to happen for the inspection report, all that stuff. The other thing I kind of just want to mention this, we didn't touch on for the contract is for buyers that are. They're purchasing a property and they want to move it into an llc. One of the biggest questions I get is, well, should I hold off my closing until after my LLC is formed? And Mark, you and I had a talk about this for a client a couple months ago, and we both informed him lo buy it yourself personally. Once the LLC is formed, you have the bank account and your tax information, your tax ID number, then you transfer it. You requested, you know, d transfer all that good stuff, title transfer, all that, whatever needs to happen for that. That's one of the bigger questions I get a lot, especially from an investor standpoint, is, you know, they don't have the LLC formed yet. Right. Which any good tax accountant in real estate is going to tell you to get an LLC formed to throw your properties in it. Right. That's a big one, too. And I know you deal with that a little bit is like, how should the. How should the contract be worded? But for us on our end, for ipm, it's easy. It's a piece of paper that says, hey, this company no longer owns this property, this one does, and we'll just move it over a couple button clicks. Right.

That seems easy enough. Yeah, basic title stuff. But yeah, I just want to. Is there anything else that you can think of? I mean, I know, we touched on it, that it's seems like it's fairly simple, you know, I mean that there's a lot of moving parts, but there's a lot of teammates that are kind of keeping the machine moving. And you know, I guess we want to just rest assure to our investors that there is a lot of us. We all work in the same office, which is nice because it's literally getting answers fairly quickly by walking around the building. I'm known for walking around and bothering everybody, but yeah, yeah, I actually do.

That from time to time. I'll just get like a little notepad and say, okay, I talked to Mark about this and Caitlin about this and oh, I gotta stop in and talk to Cassie. And then I'm like, oh, I gotta stop and talk to the rehab, talk to Jen, you know, and just go right down the list and they just walk down the hallway and just stop in everybody's office and just talk about stuff. It's not always the most efficient way to handle situations, but give me excuse to stand up and move around. But for our clients it's just, yeah, like we, we all talk. Like today we had our, you know, our big, our weekly, we call it the BAM meeting. Right. Where we go over all of our projects, the whole team, all the whole company, everybody, the virtual folks and the in person folks. Get in there and stay in a room. We talk about all this, all of this, all the projects and where we're at in this process. So it's a big, it's a big thing. We take it pretty seriously. Any of our potential buyers that are like, hey, I'm interested, let us know. You already follow us so you have access to our website and contact information, all that good stuff. I think we upload some stuff. The property presentation is even live. It's on the Internet, right? Yeah, it's all, it's all out there.

Yeah. And once, you know, once, once somebody asks for the contract, you know, then they're of course going to be shared the scope of work, you know, all the things. Oh yeah, yep. Everything that's been included in the rehab or soon to be done on the rehab and punch list. So yeah, there's just a lot of information out there for them to read and make decisions and bed mentioned earlier, do your diligence, you know, do some research. But again, feel safe that we've done it too, you know, that we've done the research, we've done, you know, the market for the value for the rent, you know, and things like that as well.

Yeah, well, I think that's about it. This has been a good talk. Like you said, walking through this a deal front to front to back, all the way through. If you have any questions, absolutely. Reach out to us. We love to talk about this in more specific details or for individual properties. Let me or Mark know and we can walk through specifics on that particular property. We like to end these things by saying invest smart and live happy. Take care.

Thanks everyone.

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