Learning how to establish the (ARV) After Repair Value on property

Okay, and I'm also gonna record this so that I can upload it on YouTube for anybody else that wants to see it.

Mm-hmm.

My name is Joe Homs, and I'm a real estate investor for over 40 years, and I've got 3 other investors on the line with me here. We're gonna do a quick webinar, teach the basics of How to establish after-repair values and flipping properties. So let me start sharing my screen. Okay, do you guys see my screen now?

Yes, sir.

Okay, perfect. Okay, so let's— I guess we need to start someplace, so we're gonna start with my purchase rules. So those of you that are out there looking for properties, I know Elton's a wholesaler. This is probably one of the first things that you, that you really need to know, um, for wholesaling is, is how do I establish the after-repair value on something? And then using these percentages that I have here, um, how do I determine what What I call is the maximum allowable offer to put on a place. So you see that it's 70 to 80% of ARV that I use.

Mm-hmm.

70% I use if I'm going to do like a hard money loan situation. And hopefully everybody knows what that is, but if not, briefly I'll explain to you. So you're getting a loan from somebody Hard money lender is the easiest way to do it. They're the quickest way to do it. They do charge more interest. They do charge points. So you have to take all that into account. So think of it, if you're gonna use a hard money lender, as like an extra business partner.

Okay?

So I use 70% because that kind of takes into account that business partner. Now, if I'm doing my deals, my deals are all cash. So I use 80%. So if, for example, if we're both bidding on the same property, I'm probably gonna end up beating you out of the deal because I'm bidding more on the property 'cause I can go up to 80%, where you can only go up to 70%.

Okay.

So for example, 80% of $500,000, Is 8 times 5 is 4— what is it? I'm gonna get a calculator out here. 500 times 80%. Okay, 400. So 400 would be my maximum allowable offer on the deal. Okay. That includes the rehab. That includes closing costs as well. I like to use 70% because it gives me a better profit margin at the end of the day, but this is a very competitive market here in California. 70% is $350,000. Okay, so now let's work some of these numbers backwards. So, uh, for the rehab, I use 10% of the ARV. So if we've established that our ARV is 10%— I'm sorry, $500,000. So 10% is $50,000. So we need to add $50,000 onto this, and that will include the rehab. Okay, now the rehab— this is, again, this is an estimate. This is me looking at a deal that maybe a wholesaler sends me, an agent sends me, or somebody sends me. Before I get off my butt and go out to look at it, because I get probably 3 or 4 deals a day, I have to do these numbers. Because if not, I would literally be out looking at these properties that maybe don't even pencil out at all. Okay, so these are the numbers that I go through every time I get a deal. These are the numbers. So we're at $500,000 and the maximum allowable offer is $350,000. We just added another $50,000 for rehab. Closing costs, I would say to use 4.5% to 5%. Now, when you're, when you're calculating the closing costs, if you're not a real estate agent— and I know, I know Brandon is— but if you're not a real estate agent, then you're going to pay about 2.5% to the buyer's agent. That's the person that brings you the buyer on your deal at the end of the day. You're gonna pay about 1% in closing costs to the escrow company, title, all those fees. So now we're up to 3.5%. And then if you wanted to bring the deal back to me, which I hope you will, I only charge you 1%. Other agents are gonna obviously charge you more, but I'm happy with 1%. Okay, so if we add another— let's just keep the numbers even here. So if we add another 5% onto this deal, that's another $25,000 onto this deal.

Oops. Oops.

Okay, so we're at— we were at $350,000 plus $50,000 for the rehab. Plus $25,000 for closing costs. So if my after repair value is $500,000 and I'm all in at this point at $425,000, okay, the difference there is $75,000. What is that difference called?

The ARV?

Nope. My ARV is $500,000. I've calculated all my costs, so I'm all in at $425,000. What is the difference between the $425,000 and $500,000?

Is that your maximum allowable offer?

My maximum allowable offer is $350,000. I bought this deal for $350,000. I put in $50,000 for the rehab. I'm gonna spend $25,000 on closing costs and commissions. I'm all in at $425,000. What is left?

Profit.

Thank you, thank you. Profit. So in this deal, I've got a $75,000 profit. Okay, and so it depends at this point whether you want to go up with your price to get the deal, which means you'll make less profit, Or if you don't think that's enough, then you have to go down from the maximum allowable offer. You have to go down. So those are the, those are the calculations that you have to figure out as a flipper, as a real estate investor, into figuring out whether this is going to be a good deal or not. Okay. I personally don't do any deals unless I'm getting at least 10%. And so, um, in this deal, you can see I'm getting, uh, $75,000. 10% would only be $50,000. So this is a good deal for me if I could find it. That's the hard part as well, is trying to find this deal. Okay, so do we have those numbers kind of written down someplace? So we've got, uh, ARV, which is where we're going to go to next. I'm going to show you how to do that. And then use 10% of the ARV to figure out the rehab. And again, that's only an estimate because we can go out there and it could be way more, or we could go out there and it could be way less. It just depends. Um, 5% in closing costs at the end of the day if you're not an agent. So that'll give you all in, and then the difference is going to be your profit. My contractors can rehab a condo, um, for like $45,000. That's everything. That's windows, flooring, painting, cabinets, anything and everything that was in there is ripped out and put in brand new. I can do it for about $45,000. My single-family rehabs usually go around $70,000 to $80,000. Okay, so those are another, another rule of thumb numbers that you might want to write down and keep in the back of your mind. I hire contractors to do all this stuff. I don't do anything myself. I used to, but I don't anymore. But if you're inclined, like I know Brandon is, if you're inclined to do this rehab yourself, then fine. Then I say go out there and, and, you know, find something, and you'll be able to do it for way less expensive than I would be able to. do it or have my contractors do it. Okay, um, next thing I want to do— okay, so if you're, uh, okay, here we go. Connect. Come on, connect to my phone here. There we go. Okay, here we go. Perfect. Okay, so this, this is the HomeSpotter app that I was just showing you. Okay, and if you, if you want to follow along, like I said, I'm recording this, so I'll send this to you when I'm done as well, in case you didn't catch something. But this is, this is what you need to use to determine your after-repair value. Okay. So, uh, let's, let's take for example— well, let me, let me kind of, um, show you around here. Um, this little bullseye there, that is— if you press that, wherever you're at, okay, it'll zoom in and it'll tell you, okay, this is where you're at. So like, let's say you're driving around this street and you want to see all the comps around here, which is— this is actually my neighborhood. You would just press this button here. Okay, so for example, let's, let's just, let's just, uh, go in on onto my neighborhood here. Um, when you go to filter, you want to select active, pending, under contract, and closed sales. Okay, that's really important. Okay, residential, and then press search homes. And then now it's going to fill them in. Okay, so now you can see in my neighborhood, uh, there's like— let me see this one. Uh, no, one below that. Yeah, that's kind of in the neighborhood, uh, next to me. But, um, the green ones are active, active on the market right now. This information is directly derived from the MLS. And And the reason that you're on here, if you— if we're good, if I go down to messages, you can see that if you wanted to ask me something about a particular property, you would just click on it and then I would be able to leave you a message here. You say, hey Joe, what do you think about this property? Okay, so that's why, um, you're connected to me. Brandon, obviously you're an agent, so you, you have access to all this information as well, and you can share this with with your clients. The green ones are active. The kind of yellowy ones there are in escrow. Active under contract, these kind of orangey ones. Then the red ones are closed. Let me move this over here to this community here which is across the street from me. Let's say somebody calls you and says, hey, I've got— here, let me just click on one of these. Okay, so here's a closed sale. Okay, so somebody calls, says, hey Joe, I've got a 4-bedroom, 3-bath, 3,400-square-foot home that it is really in bad shape. It's really distressed. I know I can't get what the neighborhood wants, but you know, would you give me $900,000 for it. So first thing you do is you're going to come back here, you're going to put the address up here. So 22421. This space is going to do the same thing, 22421, and then Blue Jay. And you see that it's already there, so you click on it, and then now it's going to bring us back here. Okay. Once you're in that neighborhood, then you're going to Press this X here to X that out, and then go to filter. And then it always erases all this stuff, then you're gonna have to add all this stuff back in again. So pending, active, under contract, done, and then search homes. And so now we're back here again. What happened to the, um—

There we go.

Okay, so, uh, the ne— the next thing you need to do is you, you need to go into— I don't know why it, uh—

there we go.

You need, you need to go into this area. This is basically all the same area. And you need to find out, okay, of the ones that have sold, because that's what you— how you do your ARV. You've got this one at $980,000. You've got this one, same square footage, at 1 point—

$1.2 million.

Let's call it 2. $1.2 million. You've got this one, $1.15 million. You've got this one, $1.14 million. You've got this one, they're getting closer to a busy street there, that's why they're going down in price. $1.2 million, that's pending. Okay, so establishing the after repair value, always use the ones that have closed already. Those are proof that you know that that's already done, that you can sell it for that. Yes, you can start looking at the rest of these, the green ones that are active. You can drill down into those and it will tell you what the price is. It'll show you all the pictures. Since I'm on mine, it tells me that it's vacant. On yours, it won't tell you that. Okay, I've got a lot more information on mine, obviously, because I'm a real estate agent. So I have all that, basically all this stuff. This— here's public remarks there. That's what you'll see.

Okay.

See, I've got the other agent's phone number. I can contact them. Okay, so, uh, here's 1.25, and it looks like our average is around 1.5, I would say around there. Um, the after repair value, maybe even less than that, maybe 1, um, 1.25. So let's just, let's just go with 1.25. Okay, so let's bring my calculator back out. And we'll clear this. And $1,250,000 times 70% equals $875,000. Okay, if I did $1,250,000 0 times 80%. It's $1 million. So we're in— we have the maximum allowable offer somewhere less than $1 million. Okay. And then a guy that talked to me said he wanted to sell it for $900,000. So $900,000 is good for this deal. So let's, let's work out, let's work out the numbers. So if we've got an after-repair value, let's start all over again. 125,000. Okay. After-repair value, and then we want to subtract the, Rehab, which I told you is about 10%. So that's about $125, correct? Minus $125, $123 equals— and then closing costs. And yeah, I know closing costs are really high, but that's just the way it is. So half of that is going to be about, let's call it $80. Oh, I messed that up, didn't I? 125,000 minus 125,000 minus 80 equals, um, 1,045,000. So if we were to buy this property at $900,000, then the difference is $145,000 as a profit. That's an awesome profit. If you can get something like that, that's awesome. So that's how you would figure out the after-repair value on a place. Anybody want to give me an address and we'll, we'll just start there and look it up? Anybody have an address?

Uh, whichever one.

Yeah, just a general one. Um, well, let's do this. Let's go, let's go back here. Let's go back. Let me open up— how about let me open up the MLS and we're gonna, we're gonna go just look at, see what we can find right now.

Do you want me to give you mine, see if we could find something around here?

I'll just look on the MLS. Oh yeah, sure.

I got one if you want me to give it to you, John.

Okay, yeah, let's just look for some real-life examples here. So these are all identified as fixers. And look, that's so funny, I went to look at this property the other day and And I don't know if he's got all the pictures here, but can you see all the pictures? Mm-hmm.

Yes.

I went in and it's, it's actually on my Facebook page if you see this property. What happened was they had water damage. This agent bought this for $300,000 from this lady, and he was gonna start to rehab it, but he ran out of money. And now he's just trying to sell it. So you see the condition that it's in?

Mm-hmm.

2-bedroom, 2-bath. I offered him $325,000. I see he has it for $360,000. So let's, let's do the after repair value on this one. So I want you to go to your, um, your app, and I want you to type this address in: 26007 Orbita in Mission Viejo. It, it should pop up. So we got, uh, what was the address? Oops.

26007 Orbita.

26007 Orbita.

26007 Orbita. You see where it pops up green? You see where it pops up green? You just click on it and now it's going to zoom into that area.

Mm-hmm.

Okay, we're going to click the X because it's just looking for that property. We're going to go to filter. We're going to go and click on pending, active under contract, closed. Done. We're going to go to the bottom and search homes. As soon as it updates, you'll see that this property's Is right, right in this area here where— let's see, this is— oh, this is actually across the street. And for some reason, I haven't figured out how to zoom in. Hold on, maybe— oh, here we go. I'll just do it here. Okay, so this property is right Mr.

Homs, for the filter, what, what was it again?

Or I'm sorry, for what? For which filter?

For status, type, and subtype. It was pending sale and then residential.

The first top 4, the top 4: active, pending, Um, what's the other one? Backup and then sold. You got it?

I only have active and pending sale. There's—

so you have active under contract, closed sale, and—

Oh, okay, okay, okay.

Got it, got it. Do you want us to hit the closed sale?

Yes. Okay, okay. So the closed sale is going to get you what you need, which is right here. Which is what I told him. Um, so in this case, here's a closed sale, same thing, $425,000. He's at, um, he's, he's this one.

He—

is that him? That one, $475,000? Maybe not.

No, the Orbita one that you were looking at was $360,000, I think.

Yeah, $359,000. Okay, so let's just say You know, this is obviously active. Um, I, I, you probably have to go back a little bit more because I did find one that was around $450,000 as an ARV. That's kind of what I use, $425,000 to $450,000. So let's, let's try with $450,000. So if our ARV is $450,000 on this property And it's gonna need— I told you condos I can do for $45,000. So, um, let's, let's subtract— let's just subtract $50,000 from there. Okay, and then, um, the after repair of that— I mean, the closing cost commission, 5%. Uh, so that's gonna be about $22,000 around here. So our, our maximum, or actually our All-in costs are $378,000. And then if I want to make at least 10% on this deal, so that's another— so minus $45,000. So my maximum allowable offer is $333,000. And that's why I told him $325,000 in the condition it was in. But that's, you know, what did he want? $359,000. That's—

Yeah, $360,000.

That's close enough. Like, you know, at this point, um, when I went to look at it, it was not on the market. Now it is on the market, and he's offering— he's so nice— he's offering 2%. You can see there I highlighted it, 2%.

Yeah.

A buyer's agent. Okay, um, so I can get 2% of You know, whatever, whatever I put in. So $6,000. So I mean, it's still not honestly a great deal for me. I need to get it for that price. I may put an offer in at the $325,000 price because with this type of property, you can see from the pictures, a regular buyer is not going to come in. Number one, they're scared of what they see. And number two, the bank will not make a loan on a property that is not in livable condition. So as an investor and a flipper, you have a good advantage that you can get something like this, as long as this guy at the end of the day agrees to sell it, because it sounds like, you know, he needs the money for some other rehab. Okay, so let's go.

So when you, Joe, when you look at this and you say, you know, it's just kind of cosmetic stuff there that looks like needs to be repaired, you know, drywall, water damage, carpet, flooring, paint, do you adjust that repair cost of our estimate for $50K?

I know that to do this really nice, I would probably remove this here.

Yeah.

Just leave the bottom part exposed. I don't think— I was there and I don't think this is load-bearing. I'd have to have my contractor check, but I've been doing this for a long time and I'm pretty sure it's not load-bearing. There's probably a piece of wood that goes from here all the way across here. So this is not really load-bearing, but I would take that off just to open up this space more towards— so you can see, just open this space up more. This needs, you know, just— it needs a lot. Honestly, just needs drywall. All the flooring needs to come out. You need to put a new kitchen. It has popcorn ceiling, so I take all that off and This, I don't know if I would leave that or not. It is 2 different levels, so you have to have something here. You just can't have zero there because you won't pass inspection if you have that there. So I'm guessing from what I've done, literally $45,000 to $50,000 to do this. Um, you know, the, the deal is halfway there because they've already done most of the demo. On this property. You just need to literally put it back together.

Yep.

You know, so to me, like I said, I may end up putting an offer at $325,000. You know, if he takes it, fine. If he doesn't, and if there's somebody else, then fine. You know, what can I do? I'll move on. I have, I have a search that Anytime somebody identifies a property as being a fixer or distressed or whatever, it comes up. And so these are my dailies that came up today. You can see that some, you know, most of them are on the market for 2 days, 1 day, 1 day. The one, this, this one that's been on for 50 or 25 days, when they start reducing their price, it automatically comes back to me and says, okay, he's reduced the price. So if I would be interested in something like that. So let's take— and you can see it's sorted by square footage.

Right.

So anything under 300 square foot here in Orange County is a good deal. So let's just, for example, let's take, let's take this property in Anaheim. And who knows if it's distressed or not. Let me look at the pictures real quick because it doesn't look distressed. Sometimes these agents just— yeah, they don't look distressed at all. And oh, this is out, this is out in the canyon. That's why it's so low. Uh, some of these are, you know, as you, as you start to look at the pictures, um, you know, these cabinets aren't too bad. Um, this is, you know, um, granite. Which is kind of old-fashioned. Everybody's using quartz now. If I were to do anything in here, I mean, these, these cabinets would probably— depends on what they look like inside— would actually pass my test. And I— but I would literally paint them white. Everybody wants white cabinets now.

Right.

They don't want dark at all. So I would paint these white if I wanted to save the money. If not, To rehab this kitchen, just to put cabinets in, it's going to cost me about $7,500, $8,000, around there, to put brand new cabinets. So it's not like the end of the day. I don't like that one as a fixer. It's really not. Let's take a look at this one because this, this is— yeah, see, now this is a little— ah, there you go. Like that?

Yeah.

Yeah.

So this is more— see, that's more what I This is more of a fixer type.

Yes.

And then, you know, these cabinets and the range hood that goes up there, all this disappears during my rehab. This will stay there, but all this above the eyeline disappears, and I'll put a vent right above it, and it'll really look nice as it comes down. Okay, so— oh yeah, see, this, this is perfect. This, this is an actual fixer. Okay, so even if people— I mean, you know, they— I don't know, I'm very particular with my clients, and I tell them, even if I have a property like this, I tell them, sorry, but you need to clean up all this stuff. I don't want any— when the guy comes over to take pictures, I don't want anything, anything whatsoever on there. It's like, it's hard to believe that these agents just don't tell their clients that, but You can see, look at this. This is very close to being a hoarder. You know, these are flat panel doors. I get rid of those and I put the 6-panel doors. They're very, you know, they're much more decorative. I also see some issues here. You can see these cracks that I'm pointing to there and there.

Yep.

So in this house, there may be some foundation issues and we'll take a look at the listing and see what it says. But when, when you're looking around at a flip, this is what— these are the things that you need to look for. Things like that, those, those are signs of a foundation issue. Okay, you can see that maybe it's a little cracked over here as well. Again, you know, as a real estate agent, please tell your clients to clean up. Okay, so here's another, you issue there with that. As you walk around these places, I mean, you may be walking uphill, you know, because it's damaged. You've got foundation issues. All this kitchen would disappear.

Yeah.

I mean, just literally by looking at the pictures, I'm looking at probably a $70,000 rehab. Backyards and front yards can get expensive. Landscaping is expensive. I would tear this down, this patio cover. I would try to, to, you know, trim all this stuff up, make it look nice. As long as it's green back there. All this— see, all this needs to disappear, or either that get trimmed up to the point where you can actually see the house. You can't see that. You can't even see the house. All this needs to go. Off of there on the left side. Okay, now we're back here. Okay, so if I'm reading on here, fantastic fixer. So we go down to the agent comments where you'll find a lot of the stuff that you need. It does not have—it doesn't make any mention about foundation issue. Subject to space ninety-four-year-old original owner. In-home with caregivers, do not walk on property, sold, submit highest and best. Okay, so let's find out what, what our highest and best is. Now if you're an agent, I'll show you, just show you this real quickly. I don't know if Brandon knows, he probably does. You click on parcel number. And if you go down, uh, here, you can see that the value of this property is anywhere between $675,000 and $825,000. If you go back up here and you hit on comparables— and again, only agents can do this through the MLS, and that's why I gave you the app so that you're able to do this on your own— And then any properties that you find, anything that you're not comfortable with doing after repair values, Please reach out and I'll help you. Okay, so now let's go back and go back to the app, and we're gonna put the address in there, and we're gonna— oh, what happened? That's not the address. That's not the address. Let's go back. Copy.

Copy.

Okay, so we're gonna, we're gonna do the same. Geez, why are kids to keep doing that? Okay.

My email.

I know, 32691 Carretera. Okay, so 32691, there it is, Carretera. So you hit that, and again, it's going to take us over there, and we're going to click the X because right now it's just looking for that property. We want to know what's going on in this neighborhood, so we'll go back to filter. We get the 4 statuses there, all 4 done, and then search homes at the bottom. So we're still there, and then let me zoom into that neighborhood there. Okay, so, um, This one, 4-bedroom, 2-bath, 2,128 square feet, is $750,000. This one's way smaller, it's just $1,300, so that, that's not a comparable. That's the one we're looking at. And this looks like it's across the neighborhood, so that's not going to match. So what else do we have here? That's kind of too high. That's kind of too high. You want to stay as close to the property as possible. This one's $775,000. It's got, what, 200 square feet more? I like to go at least 100, but for comparison purposes right now, let's just say— here's one at $735,000. What's— oh, there we go. So there you go. That's, that's pretty much a model match. $1,392. So $735,000. So let's use $735,000 as our after repair value. And then you can actually look at this one. And what I like to do is I like to come in here and look at the pictures to see if they actually upgraded it or not. So as you get down to the kitchen, I can tell this is probably flipped because I, I use kind of the same staging furniture on mine. So see the range hood I'm talking about right there that I'm highlighting?

Yep.

That opens up this entire space. There's probably cabinets there before, but no. Okay, so you can see this, you know, this is a nice cabinets, nice flip. So this would be a good comparable to use. So $735,000 is what we're going to use as, as a comp. So let's go back And do our numbers now. So after repair value, $735,000, and then we're going to subtract the rehab, which is 10%, or let's just call it $70,000, and then closing costs, $35,000. Nope. Oops. Okay, so let's go back. 7/5— nope, I'm sorry, 735. 735, 1, 2, 3, and we'll do times 70%. We'll just go to the maximum, 514. How much did they want?

550.

550. Yeah, we're not too far off. If we go to 80%, so $735,123 times 80%, $588,000. So we're, we're definitely in the ballpark. This is definitely, um, a good rehab. So Brandon, there you go.

Yeah.

You've got, you've got a potential there, um, to buy, you know, to take a look at this property and, and, uh, and buy it. It, it would be a good deal. You can do the comps, um, on your own, but you can see that I, I'm definitely— um, you need to drive the neighborhood. So, and what I mean by that is, um, this property is like right here, so you don't want to use these comps over here because you can see literally if I go across the neighborhood, there's a property at $1.3 million. Well, that's not the same neighborhood. There's a, there's a busy street. Camino del Avión is right there.

So it's a different city.

Yeah. So if you're wanting to use comps from this neighborhood, you just made the first mistake as, uh, as an investor. You're using the wrong comps in the wrong neighborhood. And then you also want to drive the neighborhood. So I'm assuming that this whole neighborhood is the same, but I don't know that until I actually get there and start driving around and looking. Okay, but I'm pretty sure I'm very familiar with the area. This is probably your best model match, is $735,000. So even though you have this one at $699,000, let's take a look at this one and see what's going on. Buyer's canceled for personal reasons. Okay, we have a lot of that going on right now. Uh, okay, so I see these, these are different because it looks like they're attached. So it's, it's, um, like a paired unit, I call it. It's attached to another unit, so there's 2 of them right next to each other. So that's, you know, going to reflect in the price. It's not going to be as much if it's paired like that instead of separated like this other one we looked at. So again, we go down to the kitchen pictures and look, and you know, that's not a bad kitchen. It's nothing wrong with that. I don't like these cabinets, but you know, that's just— I'm trying to open it up to as many people as possible, and everybody likes white. And they like granite on top as well. So that's kind of what I stick with. I want to stick with as many buyers as are out there. Okay, so again, we come back to here. So this looks like this neighborhood up here is different than one down here. But for the price that they're offering at, if you could get that for $525,000, that's, that's a good deal.

Yeah.

Oh, I don't think we figured out how much you're gonna make. Okay, so we're at $588,000 plus $75,000 for rehab, plus $35,000 for closing costs, $698,000. And if you could sell it for— what did I say? $735,000, you're looking at making $37,000, $38,000, around there.

Wow.

You know, and depending on how the market shakes out, you might be able to get a little bit more. You know, let's say you get $750,000, so now you're making $52,000 on that flip. I get a lot of people ask me, well, you know, what if it's on the MLS, does it go quick? Yes, it goes quick. I don't necessarily know that it would go like super quick right now with this market. I don't know, and I guess that's the chance you're gonna have to take as far as whether you think the market's gonna rebound or not. You know, those are all questions that you should be asking yourself. So, um, does everybody kind of have the idea on how to figure out what the after-repair value is on a place? I mean, if I sent you a property, could you do this, Eddie?

Um, kind of. I'm still a little bit iffy, but I do know, uh, which steps to take.

Okay, do you have any particular questions while we're here?

For the— let's see, there was one that was $450,000 and the repair cost was $50K. I think that one was the one with the 2 layers with the barrier. And then this last one, Is it going to be 10% for all the repair costs?

Yes, that's the estimate that I use.

Okay, okay, okay.

Okay, and again, that's just for me to work my numbers, uh, to get me out to take a look at the, at the place. Okay, were you talking about this one on Orbita?

Yeah, yeah, yeah. Okay. Yes, yes, yes, yeah, that one.

Results from a search. Yeah.

Uh, oops.

Okay, but I just want to make sure you have the numbers and the percentages so that you feel comfortable that if you're looking at something, that you're able to establish the maximum allowable offer that you can offer on that place. So when somebody comes up to you and says, you know, for example, on this property, I'll sell it for $360,000, at the end of the day you figure out the most you can pay is $325,000. Okay? And I don't necessarily want you going over that number because if you do, then you're gonna get in trouble. You're not gonna be able to make any money on it.

Oh, okay.

Okay. So, Brandon, do you have a question?

I got a question just on the closing costs that you put in there. So as the buying agent, I guess per se, you know, you got— you're splitting the closing costs with the seller, and then that extra money, is that for as the seller when you're flipping it and you're selling it? That's built into that? That costs $2,000.

Okay, so as an agent, if you were to put an offer on this, let's say at that price, they're offering 2%, so you're gonna get 2% of that. Um, just how much?

$5,000 or $6,000 or something.

Okay, $5,000 or $6,000. And depending on, in your case, what your commission split is, you could end up with whatever your commission. So $4,000, I don't even use that to account for anything. That's just, you know, that's just extra money. If you wanted to throw it back into the deal, that's fine. It really kind of works out all the same at the end of the day. And then as you buy this property, then obviously you're going to sell it. So you definitely need to offer— in this case, he's offering 2. You can offer 2, but in most cases— Agents want 2.5%. So 2.5% and then at least 1% for closing costs. So escrow, title, um, and everything else that goes with that. And then I— and then I— like I said, at the end of the day, um, if you're not a real estate agent, I'll charge you 1% commission. Goes back to me. So if we're selling this at the end of the day for $450,000, I end up getting, you know, $4,500.

But all that is included in those— that on the— that one that you're looking at, the Orbita, the $22,000, that's all in there, right? Correct. For both the buying and the selling on the flip side?

Correct.

Okay.

Elton, do you have any questions?

Yeah, I was trying to take, take a look at all the closed deals near that property. The Orbita, Emisión Viejo, in the app that you sent us, but I can't find anything. So it shows that it was sold for $360,000, and I put the filters closed sale and active, and it literally doesn't show me anything.

Okay, so here we go back again. So we're on Orbita, and I want you to take and kill this address here, the X.

Okay.

Okay, then you have to go into the filter and you have to go to status and you have to click the top 4. Okay, then you press done and then you press search homes again.

Okay.

Okay.

Oh yeah, there you go.

And then now you'll see them in there.

And now I just type the address again?

No, no, it should be right there. You just have to, you have to zoom into where it's at. So that's what I'm doing now is zooming into that neighborhood.

Oh, I see. That's what we do when we try to find comps, right?

Correct.

Oh, I see. Perfect. Okay, so, okay, got it.

I'm actually back here. There's a reason I can't find it, so Okay, right there. You can see that here's a, uh, one for $476,000.

Yeah.

Here's, looks like 5 more on Orbita. Uh, obviously $359,000. Here's a closed for $300,000, and that was the same address because that's what he bought it for. He bought it at a good price, you know. Here's one, um, that is a bigger square footage, so $486,000. And see, he's— he— this is the one that he's using to comp. So he's like, uh, I don't want to call him a liar, but he's not telling you the truth. Here's one closed sale, which is the one we found, $425,000. Um, this— see, this one's bigger, 1,500 square feet, $480,000. And this one, $475,000, closed sale. But again, that's a bigger Bigger one, a bigger unit. This one, $476,000. Again, that's bigger. So that's, that's why I was telling him, you know, my after-repair value is $425,000 to $450,000, and he kept insisting it was, you know, higher, $480,000, which is— that's why he's using this comp, but he's just not being truthful. Okay.

Got it. And that's something that you— I can use in order to negotiate the price with the seller, right?

Absolutely, yeah. This, this is what you're gonna use because you're gonna be a lot smarter than the average bear, and you're gonna know because you're gonna look at this, you're gonna go, wait a second, there's one that sold for $425,000, there's one that sold for $445,000, there's one that sold for $430,000, you know, and you're looking at the square footage and you're going, this $476,000, oh no, that's higher square footage, so that, that's not a comp, that's not a good comp. So you have to use the ones that are the closest to what you're trying to establish the after repair value for.

Got it.

Okay.

Is there a specific number for how much it could go over or go under for the square footage?

100 square feet.

100?

Yes, good question. That's what I use.

Do you think that right now, Joe, we should keep doing the same, the regular wholesaling process, or we should try to do something more like virtual because of the whole situation?

I mean, if you're just starting out, this is, this is how I teach wholesaling. So this is my sheet for teaching wholesaling. If you want, we can do another webinar tomorrow or something, and I can teach you how to wholesale. It's, it's not, it's not as easy as they tell you on BiggerPockets, especially out here in California, because it's very competitive. But, you know, if you wanted to do that, that's fine. You know, you said you were putting a website together as well?

Yeah, I was trying to open my website though. 'Cause I try to wholesale, but I was reading multiple places that because of the whole virus situation, it would be better to switch to virtual wholesaling or something like that instead of regular wholesaling process. So I don't know, what do you think about that?

Virtual wholesaling means that you are wholesaling from a distance. And it really has nothing to do with the wholesaling process itself. Okay. This, this is my website that I use. So, you know, you can create a website, it's up to you, but this is what I use to get people that are interested in selling. And right, right now I get actually more buyers than I do sellers. Right now, but, um, you know, who knows when the, when the market's gonna turn. I have no idea. Um, yes, let's go to, um, I sent most of you, um, I don't think I sent Elton this stuff, but, um, this is just kind of, uh, what we were just talking about, but like real quick, down and dirty. So So, you know, we're talking about a $500,000 house and the square footage was like 1,300. And then you've got choices here as to a condo, average condition, distressed, very distressed. That's gonna change the rehab amount. So if we put very distressed, you can see that the rehab is $65,000. And then closing costs are $20,000. Your profit, $37,350. So this gives you your offer, $372,000. This, this does it for you instead of doing the, you know, by hand pencil and all that stuff. That's what this program does. You know, again, it's super, super simple. If you have A condo at this price. You can see that I even put the rehab cost down to $32,000. We have to change it because it should be around $45,000. Average condition, so you just change it and it changes the number so quickly that you just kind of look at it and then you can see what the return is. If you go, if you go to, you know, $1.2 million property. You're gonna, you're gonna see that, um, very distressed, that you're gonna make the most money on those properties. You can see that, uh, you're making close to $100,000 on this. That's if you do only a $65,000 rehab, which you're not. You're gonna do at least $100,000. Um, the problem with the $1.2 million properties, when you get into that price range It just takes a long time to sell them. Just takes a super long time to sell them. So I don't do anything above $600,000. You're welcome to do it. And if you like, you know, let's say you got a $2 million property, some— somebody offered it to you for $1.2 million, and it— you can, you know, you know you can sell it for $2 million. That's an $800,000 difference. Hello? Yeah, even I would do that.

Okay.

Which, yeah, not gonna find a lot of deals out there like that. Let's be realistic. Um, the repair estimate. Okay, so now this is the actual repairs that we did on this property on Villa Juanita in Mission Viejo. $262,600. Let's go back here.

$262,600.

Okay, so you can see when we bought it— no, that's not it. Oh, that's the old one. Yeah, when we bought it, I don't remember what we paid. Let me find out real quick. Uh, let's see here. We paid $649 for it. Okay, we ended up selling it for $600. Gosh, we paid that much?

No way.

I know we didn't. We did, we did actually really bad on this deal. I don't think we did that bad. Where was it? No, that was, that was the— that's it. I'm sorry, that was the listing price. Here we go. We bought $600,000. We sold it for $760,000. Why is that showing something different there? I don't even know why that's showing that. That's weird. Oh, I'm sorry. I'm sorry, this is, this is a different property. This is one that I did. What did I buy this for? What did it say I bought this for? Yeah, I think that was around that price. Here we go. So I bought this one for $649,000 and we sold it for $774,000. Okay, so you see the, the kitchen that, you know, I like white. And we put this on there. All brand new windows, brand new kitchen, obviously. We put the sod in the front yard. You can see these trees are huge. We decided not to tackle them. We did trim this one. This was like literally all the way around. The backyard was huge. This is an over 10,000 square foot lot. All this furniture is staging furniture. Let me get back to the backyard. Okay, you see the backyard? It was a huge, huge lot. This was one where if you were going to, you know, buy this now at a good price or keep this for the future, this would be perfect for an ADU back here. Do we know what an ADU is?

It's like another, another, it's like a cabin, right? A small cabin type thing?

Yes, alternative dwelling unit, like Yeah, yeah. We used to call it granny quarters, but they call them ADUs now. It had enough room where you could put a huge ADU back here as well. And if you were going to rent out the house and that, this patio cover was there. I just had to replace a couple of things. You can see that it actually went all the way here, but it was all rotted out, so I took all that stuff off. Everything was painted on the outside. The roof was in good condition. All this landscaping, I just had the landscaper just trim everything up so you could see it like this. All this grass was actually seed. He seeded the whole thing for me. Sod's expensive, but it gets the job done right away. I had him do this when we bought the house. It took us a couple months to rehab it, so by the time we were ready, this is how the grass looked. So it came in really nice. So anyway, back to this sheet that I sent you. This is what's called a scope of work. So you literally go through every part of the house and you tell your contractor, you know, I want you to remove the popcorn from the ceiling throughout. And then you give this to them and then they send it back with, this is how much it's going to cost you. So you can see my rehab here was $72,000. When I did this, I had only paid him $66,000. I always hold back a little bit of money on my contractor just to make sure that it's, it's done.

Okay.

So that's what this sheet is for. And you go to do a property that you actually have under contract, this is what you're gonna take with you, obviously without the numbers there. And then you're gonna, you know, just go room by room and put all this stuff down that needs to be done. Okay? Mm-hmm. Okay, and then the last thing I sent you, um, was basically an analyzer for properties if you want to buy and hold something. So this is the area that you would input that, uh, the information that you want to evaluate. So for example, um, I know the numbers are low, but we're just going to go over them. So the purchase price on this condo was $250,000, $10,000 in closing costs. Every 3 years, if somebody moves out, it takes me about $1,500 to put it back in shape. In this one, I have a down payment of $25,000.

Mm-hmm.

So it's figured out this mortgage here, and at the time it was 4.5%. You go back to income. I'm getting $1,900 a month. You put that in there. Obviously, you can see this goes up to 100 units. So if you wanted to do multifamily, this is a good tool to use. You just put all the rents here. Okay, then you're going to come back and this is the executive summary. So as long as these bars are going up, you're doing good, which means you're making money. Okay. And then if you want the actual report, you go into here. So you can see that the rental income is right here, vacancy allowance, operating expenses are right here, and those you get by going to the operating expense area. Here we go, expenses. So here you put association fee, insurance, property taxes, trash removal. Are you paying for electric, water, whatever? Okay, so that's what, uh, that's what I use this for. Again, this is like a scenario if you're going to buy and hold. Okay, so for example, uh, on this chart, the first year you're— it looks like you're making money. The second year you're making a little less. Third year, because I have that $1,500 there, you're making a little bit less, but then it bounces right back up. And so this is a chart over 20 years. So let's go back and change this number. So like, let's, let's say this property is worth $450,000 now. Oops. So we go back to our executive summary and you can see that now everything's upside down, which is what California is. Okay, so if I buy this property for $450,000, okay, I'm going to be losing money every month. And you can see that in your reports. You have the rental income still the same, you have vacancies, your operating expenses are the same. So you have net and then you have mortgage payments. So you can see that your net operating expenses are $16,000. $824, but you have a mortgage of $19,229, which means that you're losing a year, you're losing $2,400 or about $200 a month. Okay, now if we're in a hyperinflation, which we're not now, but if we— and I've purchased properties like this— if we're like in a super hyperinflation and property values are going up 10 10, 15% a month like they were, then I don't have a problem paying $200 negative cash flow because I know if I hold on to that property even for a year, it's going to be way— it's going to be worth way more money than my negative cash flow. So if I wanted to buy it and just hold on to it for a year to do the— to do the appreciation route, then I could do that. But we're not there. At all. Who knows with, with everything that's going on? Who knows? I mean, inflation could kick back in and, you know, we can be in that situation, but we're not there now. So, um, let me go back to— let's put $300,000 because we were at $250,000 before. So we're just changing that. Yeah, see, we're still positive. Most of the time, the, the 3rd year we're negative because, uh, oops, because I got this put in here. I've got, uh, okay, if somebody's moving out every 3 years, which my tenants don't do, they, they— my tenants stay for a long time. I price it correctly and I'm really nice with them. So, but these numbers just kind of give you an idea. So now if you wanted to do a more positive cash flow, then you're going to need to put more money down. So in this case, let's say we put 50% down. Okay, so we go back to our executive summary and you can see now we're really making good money on there, but we had to put more money down. Okay. So anything, anything will cash flow depending on how much money you put down. Uh, the rule of thumb is you don't want to put more than 25% down. We— I used to actually put 10% down But the banks won't let me do that anymore. They don't let anybody do that. But see, even 10% down, you're losing money here. But it used to be where all I had to do was put 10% down and I was cash flowing on a property. Not a lot of money, but enough where I was cash flowing, which is what I want. So I sent this to you so that you can look at it and play around with it. In case you do want to do buy and holds sometime. It's, it's packed full of, you know, assumptions, information. You know, you can change all these numbers here depending on what tax rate margin that you're at, how much you think the market's going to go up. It's been going up 4 to 6% until this, this thing hit. So it just, you know, depends. You can throw all those numbers in there and figure that out. Okay. I think I've gone over everything that I very basically said I was going to go over. Again, I will, I will send this out to you guys as soon as I stop recording here. And, and if you have any questions, don't hesitate to get a hold of me. Work on those numbers, especially Eddie, because I'm Doing a little bit more training with you because you're, you know, brand new. So for the next couple days, work on those numbers and then we'll reach back out to each other and find out where you're at with this process and we'll go from there. This property, the one in Mission Viejo, that one's vacant. So, you know, if you're interested in going over there, I'm happy to take you over there just to look at it if you'd like. Eddie or Brandon, if you want to meet us there, you know, if you guys aren't afraid. None of you are sick, are you?

No.

No.

You can bring a mask if you like. This is about a couple of miles away from my house, so it's not like it's a big deal. I know Eddie lives in Santa Ana and Brandon lives in San Clemente. Brandon, you can go anytime. You're an agent, so you can get in anytime you want. It looks like it has a super on there, so that's good. But Eddie, if, if, you know, if you want to do a field trip, let me know. Let me know.

Yeah, sure. I might take you up on that offer.

Okay, let's get, uh, let's get together tomorrow and I'll figure out what's going on with me and we'll arrange a time and then I can just meet you there.

Okay.

Okay, Brandon, if you want me to reach out, I can. If not, then you can go by yourself. That's up to you.

Let me know when you go. I'll try to, I'll try to take a look at it.

Okay. Okay. Any other questions?

No, thank you so much, Joe.

Am I invited to that too, Joe?

What's that?

Am I invited to that tour too?

Yes, yeah, if you, if you'd like, if you'd like to come, I'll reach out to you as well. Uh, we'll figure out a time for all of us that, uh, works. And like I said, I'm, I'm literally just down the street, so it's It's, um, let's see, let me stop this recording. Okay, good. Um, it's, it's not hard for me, you know. You got— you guys are going to be driving a longer distance, but I will reach out to all of you tomorrow, uh, probably by text. I'll just put you on a text chain and I'll say, okay, when are you guys available? Let's pick a time and then we'll take a field trip and go out there and you can look at this live in person, which honestly, uh, that's the way I like to learn and that's where I like to teach, uh, because it's better to look at something as opposed to looking at it on the computer screen. Because, um, I can tell you, my photographer who takes photographs for my flips is such a professional that you, you look at them, you go, wow, that's awesome. But it's always good to go out and look at it. Okay, so I will text all of you guys tomorrow. We'll arrange a time. Okay.

All right, Mr. Homs. Thank you.

Okay.

Thank you, Joe. Thanks for everything.

Yeah. Don't hesitate to reach out. Brandon, did you have something?

No, thank you.

Okay. You're welcome. Take care. All right. Bye.