Underwriting Gangsters Live

All right, we are back with a live episode of Underwriting Gangsters. Wait, where's your. Where's your hat? Gotta get your gangster hat on now. I need my hat. Not like that.

I like that. Like that.

All right, let's do it. We are back with another episode of Underwriting Gangsters. Let's go. Today we're going to be underwriting a morbi method property. You know how I roll. So let's go ahead and share our screen. Let's do it. So I am using Buy Box Club to underwrite properties and we're going to see how that fits within my buy box. All right, so let's check this out. So the deal we're taking a look at today is in Maxon, North Carolina. So we're going to break down this actual property. We've kind of already underwritten this a little bit. You want to go ahead and type in a 3 there? Dude, this software is so easy. A baby can use this. Type that three in there. That's right there. Right there. Yeah, there you go. Type in that 2.

Me try.

Okay, type in. Type in 2. 2. Oh, oh, hold on, hold on, buddy. Getting ahead of yourself there. All right. So easy a baby can use it. That's the tagline here. Okay, so we're going to take a look at this breakdown. So in this deal we have a 1 39, let's call it $140,000 purchase price, monthly rent of 1300. Pretty strong on cash flow. If you look at this as a DSCR143, do you think this deal can buy you a lot of cash flow? Yeah, yeah, he thinks so. Yep.

You.

What are you going to do with all this cash flow.

Cappy?

You're gonna do what? What are you gonna do with the cash flow?

I don't know.

You said you were gonna buy candy.

Candy?

Yeah. You're gonna buy candy with your cash flow?

Yeah. Can't be too.

Yeah, but remember, it's only your passive cash flow that you buy candy with.

Yeah, I wait. The waitress sake of mine.

What are you buying with your cash flow? And remember, this is cash flow after we've paid all the bills. Okay. You want ice cream?

Yeah.

Okay. You're gonna buy some ice cream? Yeah, but why not? Let's not just buy ice cream. Why don't we buy the company? Why don't we buy the actual ice cream company? Well, the company will make all the ice cream. Doesn't that sound better? You could have ice cream every day. No, I think you want ice cream every Day. That makes a lot more sense to me.

I, I do like a rainbow ice cream.

Oh, you like rainbow ice cream? Well, let's look at this deal. So we got 60 cash to seller. We're gonna assume that this, this was a deal actually sent to me that someone was actually underwriting. So we're their underwriting through Buy Box Club, which is pretty easy for me to just plug in the values. So they have a 71% LTV here. So the leverage on this relative to the cash to seller is actually pretty low. But you're going to see, depending on what's important to you, what this translates to. So if we kind of run through the numbers here from a gross cash flow perspective and a net cash flow perspective, pretty decent deal overall. I mean that, that's pretty close to where I would target on something like a single family. I mean, I know it doesn't seem like a lot, but you know, single family doesn't really produce a ton of cash flow.

Yeah, I want to buy a camping. Yeah. And I cream.

Okay, so he wants to buy a camper, toys and ice cream with his cash flow. Do you think? 184 and treat. Okay. We're gonna need a lot more cash flow to be able to buy all that. So let's look at this buyer surplus. You want a lot of rainbow ice cream. Okay, so if we look at this buyer surplus, what this buyer surplus means, because there's such a small spread between the LTV from the bank and the cash to seller, there's only 11% spread here. That's not enough to really cover like honestly a lot because you're going to have things that are fixed cost. Right. You're not going to get around prepaying for. Well, let's just look at, look into it. Lick into it. I think I'm, I'm looking at you licking your lollipop. So that's, that's what you're looking. I guess. So let's look into this. And so we have a $10,000 assignment fee, right. I don't know what the actual assignment fee is, but if I make that go away. Actually, let's leave it there for now. Oh, oh, let's not mess with that.

Okay.

If we just leave this in here right now, we have a $10,000 assignment fee, a $3,000 TC fee. So you can see we got $13,000 of hard cost. So irrespective of where you land on like a percentage, if you think about closing costs as a percentage of the deal, those are hard cost. So 13,000 on a one million dollar property is a very small percentage relative to $13,000 on $140,000 proper. See, the math doesn't really work out in our favor when you look at this buyer surplus. So as it is. Oh, you want down? Okay, I'm losing one guest. See you next time, buddy. You're gonna stick with me, right? We're gonna produce some cash flow.

Yeah.

Okay. Are you coming back? Well, if you don't participate, you're not going to be a partner in the deal. And then you won't get cash flow. We're gonna have to underwrite you out of this deal. I had you locked in this deal for at least 20 equity. Well, you let me know. I. I got about 10 minutes before this deal is locked up. And then, you know, once we sign the agreement, your equity position's locked in. All right. If he backs out, then it's more for you and me. Just so you know.

No.

Oh, you want him included? That's such a nice brother. Okay, so if we look at this right now as it's written, you're gonna have a. Yes, Noah, good question. I can't access. Hold on one second. I gotta go into Facebook like manually to respond.

You know, Street, I. Let me buy a dollar with some properties.

You, you want to buy some properties? Here, here's some cash flow. You want to buy some properties? Yeah, I have to go directly into Facebook, buy some properties. Actually, that's not a good idea. Let me see here. I'll just drop this link here. It'll be. I don't know where it is on the thread, but it'll be in one of these comments. There's a 30 day free trial. Mundo orbit 30 in there. That'll get you logged in. Pretty, pretty new software. Are you coming back for your equity? No. Okay. All right, well, I warned you. He only got a few minutes left. I'm just saying. Okay, so if we look at this, the buyer only or the buyer is going to have to bring $10,000 of cash to close. Now I think this buyer doesn't want to bring any cash to close. So just from this underwriting, you can tell that they're going to have a problem. Right? They're going to have to bring 10k of cash just to close this loan. Additionally, because they structure this as a five year balloon, meaning the seller finance that they have with the seller, there's a five year balloon on it. So it matures in five years, meaning we. We lock in the deal today in five Years from now, that note is going to be due and everything's going to have to be paid in full. So that pretty much forces you to refinance out of the loan at that point, almost depending on how much is owed. So $55,000, that's not, that's not a crazy amount. I mean, it's a lot, but it's, you know, it's still within reason of. You could find a private money lender if you wanted to, to refinance out that portion, just the seller finance portion, but if you refinance the whole thing, this would say in five years, you would have to write a check for $16,000. Like you physically would have to write a check and send it in to the lender or title. The title company, however they close the refinance loan a check for 16 grand just so you can refinance out of that loan. That means. Yes, you want to buy a Campy with your cash flow.

Yeah.

Okay.

Okay.

Well, we're gonna see if this property cash flows.

Yeah.

So right now we're not going to be able to buy a Camper because we owe 16k and a TV also.

Wow.

Okay. We really need to restructure this deal if we're going to buy all that stuff. So 16k, that's what we're going to have to write at closing. That's a pretty big check. So how I would restructure this is I would extend the leverage. Like, how do you turn this losing deal? It's not really necessarily losing deal, but it's not a great deal. How do we turn this losing deal into a. Yeah, yeah, yeah, exactly. How do we turn this into a winning deal? Right. But let's first look at the most or the coolest part about this software, honestly is the real time buy box matches. So whatever buyers are on the platform, you can see my buy box is right there. I'm telling you in real time that this is not a deal for me. And the software itself is also telling you this is not a deal for me. You can see here it scored a 57% on my buy box grading. So if you look at my buy box that I have in here on the platform, again, it's doing matches in real time. This Aaron Judge here is, is a, is a fake profile. But, you know, he's off playing for the Yankees. Right. So if you look at my buy box, I want at least 200 of cash flow, which this deal almost produces. Right. It's pretty close. So that's why it's a 92%. And then if you look at the DSCR, I want a DSCR of at least 1.25. This deal meets that, which is 1.43. So from a lending perspective, strong cash flow, the buyer surplus. The buyer surplus is one of the most important things for me because I'm buying properties at scale. So I want to be able to have appropriate surplus funds at closing. And this deal doesn't have that. Right. I'm going to have to stroke a check for, for $10,000 just to make this deal work. So that doesn't work for me. So that's why it's a huge negative scoring on that end. And then if you look at the cash, cash at maturity. I don't want to be writing a check, right? A check at closing. But within my parameters, I'm willing to do, I think up to like 25,000 as far as writing a check at cash and maturity. So this deal kind of fits, right? So overall, this isn't a great deal for my box, my buy box in particular. So if I look at restructuring this, well, first of all, I can get rid of this assignment fee. And now I'm back to zero, right? So, yep, we're back at zero. And so. Oh, I'm wearing two hats now. Awesome. And still playing around with like the algorithms and stuff on this, like the real time matching. Because I'm looking here, it looks like it's. I need some. What's that? So if we look at restructuring this deal into something that, you know, I can live with, right. This is probably something that I would want it. If you look at, if I put it at six years, you know, I'm writing a check for 9,600. I mean, I'm still okay with that, but it would be more ideal if I can get it to seven.

Yeah.

Well, you, you already have those. Okay, we can get one more, but you got to get more cash flow. Oh, you have a lot of cash flow. Yeah, that is true. You do have a lot of cash flow right there.

I do have a lot of cost.

So how do we structure this? Because I don't even have a seller finance payment. Well, one thing you could do is play around with the cash to seller, right? You could either increase the leverage, you're backing out too. I guess I'm closing this deal by myself now. So now we're back. Now I got 100% back to me. My other two partners left me. But the. Hey, you know, that's okay. I can, I can carry the team. It's all good. So I can increase the leverage if I want, and that's going to give me more buyer surplus funds. I could also decrease the cash to seller, and that's going to increase my, my buyer surplus as well. This is still not like within my ideal target range, but it's, it's getting closer.

Right.

And so I want to, so I want to take a look at this as far as, so this, on this algorithm that I have for the matching scoring. This is something that I'm working on tweaking. So let's take a look at what happened here. So if we look at the monthly cash flow, let's see, it's actually, it went down. So that makes sense that the score went down. DSER is still above my target. So that makes sense. The, let's see, we got here, the minimum that I want is 20k for the buyer surplus. So that actually makes sense that it's only a 35% score. But the overall deal score went down even though we made the deal terms be better. And I think it's because of this target cash flow here. Because we restructure the debt, it means it's producing less cash flow. So the monthly cash flow score actually went down, which made it go down a few percentage points. So I want to look at restructuring this deal into a deal that would make this like something I would actually want to buy. Right. So now we're getting. I think that should drive it up a lot closer. But somehow this went down. So let's check this out. And so, oh, I guess I should have ended the Underwriting Gangsters podcast since all my, all my guests left. So let's work through, let's work through this. So if I look at this monthly cash flow still looks good. My target is 35k, so I'm not quite at my target, but it has increased more. So cash required at maturity, my target is zero. So let's refinance, let's extend this out. If I knock this out to 10 years, the score went up, which I would expect, but I would expect this to be performing a lot higher because I'm pretty close on this one. So let's go ahead and see if we can. I'm going to save this deal and then I'm going to see if I can restructure this algorithm a little bit. And so let's see, we got Maxton, North Carolina. Oh, you coming back? You want back in? All right, let's get you back in here. All right, so we got. Looks like the buy box for yeah. Is it pretend cash flow?

What is that? Is that pretend? Is not pretend.

I mean, it can equate to real cash flow. It is pretend cash flow.

Why?

I'm sorry.

I want to get seeds. That was classroom.

You want the real cash flow. Yes, I know, I know. Well, we gotta underwrite some more properties so that way we can convert this fake cash flow to real cash flow.

Why?

It's just. It's just part of life, you know, this is. This is to give us motivation, so that way we convert it to real cash flow. I know. I wake up feeling the same way. Is showing a.

Daddy. Oh, is that mine?

It is. It is yours. So we need to figure out what's going on with this one because I don't think this algorithm is tweet. Is it. Is that. Is your card a score for 55%.

For.

The buyer surplus category, Expected outcome, the deal for Maxim. Well, I'm in the middle of a live buddy. The deal for Max in North Carolina produces a buyer surplus of buyer surplus of. And by definition of that algorithm, if my buy box target is or buy box minimum for buyer surplus is $20,000, and this value is pretty close, then the score should be somewhat closer to 80, slightly less than 80, because if it was right at the minimum, then it would be scored at an 80. So let's see if we can tweak this a little bit and get a higher search result. Because I don't think this. This deal, the way we've restructured it here, I would buy this deal for sure. So this should be scoring way higher than a 68. And it's this dragging it down here. What I also have on my buy box that I've created in here, I have waitings. Let me see. I've been messing around with this quite a bit, so let me see if it's still in here. If not, I may have to adjust this. Yeah, I need to adjust this some more. So I had. It's probably somewhere in here. It's just probably not where it needs to be. Let's see. No, I don't even think this should be here in the profile settings anymore. Let me go back to my deals or actually my buy boxes. Let's see. I should have a waiting. So I had a weighting scale that would let the user tell the algorithm how they want to weight their scoring. And it should be applying specific percentages based on what the user wants those percentages to be. So if cash flow is more important than me, you could apply the weighting more Directly to the cash flow. And if the buyer surplus was more important to you, you could apply the buyer surplus weighting heavy towards that category. So let's see. Oh, now we're. Now we're going the wrong direction here. Okay, let's see the scoring. Al incorrect. Yada, yada, yada. So it's fixing that. Okay, so now that looks like that is actually correct because now we've well exceeded our target. Right. Our target is 35k and we're at 50k on this deal. So we've kind of restructured this deal into a deal that I would actually, you know, buy. And we're trying to make sure that the match score should reflect that because in all honesty, well, this is something that I would not be okay with. So we would have to restructure that. Oh, this is not the right property. Hold on, let's go back and look at the right. It was the max in North Carolina. This is the one that we need to restructure. Yeah, the 68 definitely shouldn't be 68 this deal. I don't know, it should at least be in the 80s somewhere. So it looks like it's attempting to make a change. So we'll see what that looks like. Oh, buddy, you gotta go put some pants on. What do you. What are you doing? Go put some pants on.

I don't want to.

Well, I'm kind of on a live right now. You don't want, like my millions of followers, aka3, to see you with your pants off. Can you go ask mommy to get your pants on? Hold on, buddy. Okay, so it says it restructured it. I don't see that it did. I may have to push this to production here. That's going to be kind of annoying if I need to push that to production. Actually, let me just work straight out of here. That'll be much easier. Okay, cool. Yes. This is exactly what I expected to see. Okay, that makes more sense. So if I push this to production here, I should be able to see what's going on. Buddy, do you have to go to the restroom? Do you have to go to the restroom? Can you tell me what you're asking? Where do you want me to go? All right, Wait, what happened here? All right, hold on, Let me refresh. Okay, cool, cool, cool, cool. All right. Yeah, no, that's. That's much better. So I want to see that this is working better in real time. So let's go back and refactor this into the prior deal that it looked like. So it was at 71%. So now you're going to start to see the deal head in the wrong direction and we should see the score start to drop. So it was at an 88. Now it's at an. It was at a 92. Now it's at an 88. That makes sense. Our deal is now below our minimum. So it scored poorly on the buyer surplus. The cash and maturity is still within reason. So let's restructure this down to seven. Now we're starting to get a little higher. So I should see the score drop again. So now we're down to an 85. This is still a deal I would buy. Okay, nice. And you can come sit next to me. You got bluey on. I love it. That's pretty gangster. Okay, so cash a seller. I think they initially had the cash to seller at 60. So now we're at a break even situation. So for me, I wouldn't really want to do this deal. And My threshold is 80. A score of 80 and this is below. So for me what my threshold would be. I know if it's below 80, it's like it's probably not a deal. For me it could be borderline, you know, whether or not I would do it depending on the day and how I feel. But we're starting it getting into a territory where I wouldn't do this deal, especially with the way the terms were brought to me. It was at a five year maturity date. Now we're pushing two categories that are performing poorly, which is actually the cash immaturity date didn't move up as much as I thought. I was kind of surprised by that. Let's look at what did we have? I think we originally had. Yeah, we had 60, 61. We had a $10,000 assignment fee in there, I believe. So we're going to have to write a check to close on this deal. So that's not great. Okay. What this isn't taking into consideration.

Oh.

Let'S go back to this actually really helped me. This specific prompt I use is really helped me like be more strategic and straightforward with the code. Okay. So the context I want users to place weighting on their buy box categories that are most important to them. So it's a dynamic scoring based upon each user and what they prioritize to be as important categories. You're silly. Okay, goal. My user navigates to. Yes. What do you want to play? You want to play upstairs? What do you want to play upstairs? Okay. Can you give me like 10, 15 minutes? Okay. Yep, I'll be up there in about 10 or 15 minutes. My buy boxes. Just let me finish this last part and I'll be up there. My buy boxes edit. Yes. Gotta love kids. They don't understand the concept of time edit. Okay. I don't know why this says strategy template. That's dumb. I don't want to give it too much to focus on right now. I'm just gonna roll this strategy template. Add a waiting box, a weighted categories here for the specific buy box categories for the user to place their individual weighting. The algorithm will then take into consideration the weighting assigned to each category. In the scoring example, if a user places a 50% weighting, the score is going to mean a lot more than if the user placed a 10% weighting on that category. The larger the weighting, the higher impact the score and results are on the overall match score. Okay. Do not change any more. B method calculator or sub2 calculator logic. Just focus on the match score algorithm. I kind of already told you. Give the user weighted. Yes. Weighted categories. Okay, give me about 10 minutes. Give the user weighted categories so they can assign values per each buy box. All right, let's just see what that does. That might take a second. I did have that in here, but through all the 7 million changes I've made over the weekend, it probably got pushed out somehow. Okay, so let's wait for this to be factored. All right, so each deal that I have in here has a match scoring. Okay, so that's 92%. I believe it's 68%. So it's not. It's not refreshing that when we've changed deal terms. So I need to make sure that's a bug that I need to make sure we factor in here. Well, this sure is taking sweet time. Okay, so we got write this down. Let's read through this. My buy boxes edit. Yep. Navigate to my buy boxes edits financial criteria. No, that's not what I said. Let's see. Okay. Everything looks decent, except I don't want it on that tab. But let's just see if it works. I'm just going to let it do its thing if it's doing that. And the other thing that I want to work on is the buy box page. Okay, so let's see what that match first. Let's check that out. So this is not updating still. I don't know if that even really scored any differently. So let's go into here. It said it did it on the cash flow. I don't love the way this looks okay. So it's a 92, it's 25. 25. 25 to everything. So let's go ahead and place less emphasis on the dscr, more emphasis on the cash and maturity and the rest of it on the 20%, on the cash flow. I want a lot more emphasis on cash at closing. So by definition, by doing that, I would think if it was working perfectly, that should change this match score, which it did marginally. It went from 92 to 89. I guess that, yeah, that, that worked as intended. Okay. The change you just made should not be on the financial criteria tab. It should be. I don't know, I feel like I kind of like it there actually, now that I look at it, I feel like I need to restructure all this. Okay. Financial criteria. I'm gonna leave this here for now. I don't like the way this visually looks. It takes up way too much space. I don't like seeing input boxes with text boxes providing the same value. Clean this up. Don't change any code. This is just a UI request. Okay. Oh, yeah. So the buy box, which every user on the platform will be able to get a buy box page for free. I want every user to be able to have a free buy box and it looks professional. So if you look at mine, it looks professional. It's not where I want it to be yet, but it's going to have your bio. If you want to have a video, you can have a video playing in the background. It's going to have your buy boxes. Now this is where I want to spend some time improving this page here. Because this looks like crap. I want to make sure this looks a lot cleaner and be like a very straightforward. Oh, I understand this person's buy box at a very detailed level. And someone's buy box for short term rental is going to be different from single family and et cetera, et cetera. And I'm going to add a bunch of different asset classes to this as we go, but it's going to be a really clean, professional page. So you could put this in your blank and have people just open this up. A public URL that anyone can see and be able to see exactly what this is. So if you go to my buy box where it stands right now, this is my public URL. So any user or not even a user, you don't even have to be a user, anybody could just type in this URL and see my buy box and be able to look at it. But I want to have a lot more information than it does now. Because this obviously, first of all, this is not even pulling in the right values. That's not right. And I want to clean this up. And then people can just submit deals. Then they have to create a profile and get logged in. So I want every user, every free user to have a buy box page, every free user to submit deals or to underwrite at a basic level. Now what's going to happen is you're not going to see all the math here to underwrite a morbi method property, like all this stuff, which is crazy amount of value. You're going to see like a very condensed version that's just going to tell you like the key highlights. If you're a free user, obviously this will be like a premium user feature. So let's go back and take a look at this. So look at this. Hey, buddy. Okay, I am going to play with you. Okay? It didn't do what I wanted, but I wanted to go a little bit longer. But I always told myself that I will never be too busy for my kids. So it is time for me to go and play with my kids. So I will see you all next time and I'll keep sharing. As I keep building every day or every night, every early morning, I'm going to keep building. And I think in about a week this is going to be a pretty wicked product. And then a couple months from now, this is going to be literally unstoppable. So I will see you guys next time. Yes. Thanks for watching. Subscribe for more.