Let’s Make a Deal! Learn the tips and tricks on getting and analyzing real estate investment deals

Hey, welcome to the Brick and Bloom Podcast. Follow along as co-hosts Shona and Pasha document their real estate investment journey, providing transparent and honest views of the process with a healthy dose of inspiration and candor. Let them unpack and demystify the different pieces of investment strategies through expert interviews. Whether it's flipping, multifamily, long-term, short-term, or vacation rentals, their goal is to educate and inspire others. To financial freedom and wisdom.

Hey everybody, I'm Pasha.

I'm Shona.

Oh my gosh, we are so excited to be launching our very first podcast. Shona and I are part of the entity Brick and Bloom. And we've been really inspired to connect with like-minded investors who want to know what's happening behind the scenes on any investment strategy. Shona and I have been very deeply involved in some flips, some short-term rentals, some long-term rentals. So We've definitely experienced a lot of, I would say, bumps and bruises, but also moments of celebration along this journey. And I feel like the more we talk about it and we can share our experiences, the better we feel our audience will really have some great takeaways. So, so why do we create it again? Just to make sure that we are here sharing our stories and bringing on some awesome guests who will give us definitely some great insights. So, Shona, you want to tell us about how you got into real estate investing and a little bit about your story? Sure.

Yeah. Well, I'm Shona. I've always, I think, had an interest in real estate, probably growing up with that. We basically had an inn, or what's modern— before it was an Airbnb, it was an inn. So I kind of grew up around that. And I'm from California, and real estate's always been very expensive. I moved to Portland, and I realized, like, wow, I could buy a house, which was exciting. And then I saw my— so I convinced my dad to buy a rental property. And then from there we kind of very organically, very slowly grew our long-term rentals. So it's always been kind of a side hustle for me, but I love real estate. I, we have, yeah, I just think it's a great way to build financial freedom and create housing for people. So I take a lot of pride in that. Yeah. That's, we have a couple, we have about 9 doors right now. We have 3 short-term rentals and I manage them myself, which is good and bad. But it's definitely something I enjoy doing. So that's my backstory.

Thanks, Shona. I'm a new investor. I've been investing now for about a year. Came from corporate and that was a 20-year, 23-year career in sporting goods industry. And whoops, sorry guys. Definitely took me around the world, had some great experiences, but realized that it wasn't aligning with my core values anymore. And I wanted to really get back to having family first, financial freedom, flexibility, and more importantly, fun. So I stumbled upon real estate investing and really haven't looked back. And in about a year, I have invested in 4 fix and flips and 2 are with Shona, which we'll talk about. And I have a short-term rental and also a long-term rental. So it just is something that I'm really passionate about. And the more I learn about it is definitely I want to share the experiences and just excited to see where this journey takes me and Shona.

So with that being said, we, um, a while back we did a presentation at a local real estate investment group. It's called Let's Make a Deal. So we thought for our first podcast, we would just kind of share some information and hopefully some value with you all. So I'm going to switch gears for a second and share the screen and we'll start sharing this. So if anyone listening, we'll be able to download this and we'll also have it on YouTube, but, um, I'm going to just take a second and get this sorted. So there we go. Let me get to the opening slide here. One second. So yeah, Pasha, do you want to take it from here?

Yeah. So Shona and I have had the opportunity to look at a lot of deals. And while you are getting one under contract, it takes a lot of analysis prior on multiple properties to kind of figure out which deal makes sense. And we find the more that you analyze a deal, it just sharpens your skill skills. So that's what we want to share today is really how you can find a deal and more importantly, how to analyze to make sure that you deliver on or get some great profit. So the first thing we would say is definitely look at your ARVs. Now ARV is the acronym in the industry, which can confuse— can be confusing. It's after repair value. You're definitely wanting to know what your house or property will get on the market. And that means really premium price points. So what will the market really pay for a really finished— we definitely use PropStream as a great resource. I highly recommend it. It really allows you to look at your comparables and look at apples to apples what's in the surrounding neighborhood. Really recommend that you stay within less than half a mile. Definitely look at something that has been purchased in the last 6 months and similar home types. You know, you don't want to compare a, you know, a 1990 home to a 1920 home, for instance. That just doesn't make sense. So really look apples to apples because that will give you your best comps. Also, a great resource is your realtor. So also be cautious that you don't kind of throw everything at them. So do your homework first, and then validate it with a realtor, and a really great realtor will give you some really strong comps. Then it's time to make the offer. So we really recommend looking at about a 75 to 80% after repair, after repair value. So what that means is you take 80% of your ARV. So let's say it's $500,000. And maybe Shona can do some quick math for me. Minus repairs, and that's your offer price. So 80% of $500,000, or 75% of $500,000 is $375,000. So let's say your repairs are $75,000. That means your offer price is $300K. So stick to your numbers, friends. It's really easy to kind of creep up. But as they say in investing, really the profit is made when you purchase. Then it's really important that you do your due diligence. Use that 10-day inspection period. It's always really important not to bypass it. And surprising to us that people actually bypass their inspection. There is such a tactic as using walk-and-talk inspections. So it's not like the really granular inspections where they're looking at the water turns on, the faucet working. It really is about the systems of the house, the fundamentals. How is the sewer? How is the roof? How is the foundation? Those are the big costs that are really going to kind of knock you off your, off your profit. So definitely work with an inspector to do that walk and talk and do your due diligence. And we also recommend if you have a great relationship with a contractor, we also bring our contractor to that walk and talk. So everybody's on the same page of what needs to be addressed. And then we make sure that we have one, more than one exit strategy. So You got to make sure that if you're not able to fix and flip it, that maybe you could wholesale it, or could you turn it into a long-term rental? There's just different ways to structure the deal, but make sure that you're not just beholden to one strategy. Then it's time to look how you fund it. And there definitely is this connotation that you have a lot of out-of-pocket expenses. Not going to definitely debunk that idea. It definitely is an, you know, where you will be putting down earnest money out of your pocket, and potentially putting in some money to bridge the funding. But the majority of the cost and the purchase price can be funded with other people's money or with loans. And we use hard money lending. And that even though it's a higher interest rate, it does cover your loan-to-value about 80%, 75%, depending on who your realtor— sorry, your lender is. And then we bridge the down payment. As well as the rest of the holding costs with a private money lender. So hard money lender can do 75 to 80%, even 85% of your loan to value plus your rehab costs. And then we bridge, bridge it with a private money lender, which is somebody who just wants to give— that could be your grandma, your aunt, your brother who just has some money and wants to make some interest on it. Also, too, you can work with a partner as a long-term equity partner, meaning that they stay in the, they stay in the project longer and you give them basically payments either monthly, quarterly, and then you can buy them out after you refinance. So they actually have equity position versus a debt position, which is the, the other lenders. And then there is, which we won't get too much into it, is syndication. That means when you have a group of lenders coming together under one entity and they loan you money, and that is definitely much more of a sophisticated funding strategy, but one that is very, very common in investing. So I want to talk a little bit now about the golden— we call it the golden profit formula. I know you guys, or maybe a lot of people have heard about the golden formula, but really to have a profit formula, you really have to know your costs and treat it truly as a business. And the more that you are aware of what every line item is, guarantee you will have much more control over what your end profit will be. And that'll keep you much more disciplined on all these line items. So as I mentioned, the ARV is after repair value. And you start subtracting costs. So of course, there's a purchase price, then it's your rehab. Typically, there is about closing costs are between 1.5%. So pretty nominal, but obviously something that you have to come to closing with is those closing costs. Then there are holding costs. So holding costs can be a little bit confusing, but basically it's just the loan payment term. So let's say you said you had a 10% loan term, and you're paying that over annualized period. So it's 12 months divided by your, your term structure. And then there's carrying costs. So anything that you just need to keep the lights on, so like utilities, of course, you need insurance, and you're gonna be paying property tax, those are all carrying costs to hold that property during the duration of the rehab. And then lastly, it's the closing costs. So when you have the house all beautiful, rehabbed, what are you going to come— what are you going to be paying at closing date? So you'll be paying title closing costs, you'll have realtor commissions, and, and also, also the cost of staging, which sometimes can be included in your realtor fees.

And that—

and lastly, you should have about a 2% buffer. We always recommend make sure there's things that go sideways. Things that you didn't expect in the rehab, have that buffer built in as well. And then you get your profit and that after everybody is paid, you have your— you get the equity back and you get the profits from that. So the rule of thumb is really make sure your profits are around 10% of the ARV. That's really your maximum offer there. And that should be your maximum offer.

Well, thank you, Pasha. That was very informative. A lot of good information there. So I'm going to dive in into Like, of course, this all starts with getting leads, right? We need the leads. Ideally they're off market. So we thought we'd just give a couple. There's lots of ways. These are just some high-level ways to hopefully find motivated, potentially distressed sellers. Craigslist ads. Craigslist is still around. We just kind of put up, we buy houses fast, we buy houses for cash. There's lots of examples out there. People will search on Craigslist. It's, it's still, it's still a thing. It's still popular. Again, it's kind of obvious. Network with your personal network, you know, Don't be afraid to put it out there, talk about it on social. I know for a long time I was kind of closeted investor. I felt like I would get judged for being like a landlord, but now I'm really open about it and everyone knows kind of what I do. So if someone knows someone like, hey, they've got a house, it's maybe not in the best shape, or they just want to sell it quickly for whatever personal reasons, just— I can't emphasize that enough. Just really network with— not, you know, you don't want to be spammy about it, but just talk about it. Let people know what you're doing, what you're looking for, how you can help people, how you can be a resource. Then there's for sale by owner listings. Oftentimes people don't want to pay realty fees, they'll put it out there. You just kind of use that as a search filter on Redfin or Zillow or whatnot. Call, have a conversation, see what they're looking to do and see what they're asking for. You can also do kind of filtered searches looking for fixers, maybe anything that's over 30 days. Someone might be more ready to sell if they've been kind of sitting on it for a while. The other way is to network with wholesalers. If you don't know what that is, that's people that kind of go out and look for motivated sellers and they get it under contract and they will assign that for you. They're definitely off-market deals. They, they can bring them right to you. It's great to have relationships with them. And lastly, there's, you know, find an investor-friendly realtor that kind of understands your model. They can give you pocket deals and, you know, just keep you top of mind for it, but they might get a house that's maybe not in perfect condition that wouldn't do well in the retail market. That would be a great off-market deal. So those are some quick ways to get leads.

Awesome, Shona. And building off of that, we had a very good lead come through on off-market deals. So Shona has been very, I would say, motivated and rigorous about her marketing efforts and it really proved to deliver a really strong lead, which we were able to convert into a contract and are currently now rehabbing. And so I want to talk a bit about the house in northeast Alberta. So if you're not from Portland, let me just give a little color. This is a really fun district. It's really artsy. It's quintessential Portland. We have a lot of young couples there, a lot of, I would say, fun bars in walking distance, restaurant. It's a very eclectic, again, quintessential Portland. So a lot of interest to live there. Great freeway access. So people, well, people love to live there and we're so excited to land this deal 'cause we feel it's gonna be really snapped up quickly. So this was a 74% deal. As I mentioned earlier, We kind of try to get between 75 to 80% deal in terms of our formula. We purchased it off market at $450K. We wrote the offer and the contract ourselves. You can get these legal documents online. Definitely also, if you have a lawyer, have them look over it. But we've been able to use this contract a few times, so feel pretty— it's been vetted also by our title company. So we purchased the price— sorry, purchased the home from the seller. And went through title, escrow, and then started working with our contractor on the rehab budget. We landed at all in at $85K. So $85K with the $450K, our total purchase and rehab came to $535K. And our ARV is $725K. So we're, we're putting a line item for holding costs at $35K. Closing costs were around $2K. So we are anticipating this project will wrap up here in the next week or so. So that's putting us on a timeline of just under 4 months. And all in, the profit will be minus all those line items around $116,000. So yeah, not bad for a few months of work.

Yeah, it's been fun. All right, we've got one more case study. Thank you, Pasha. That was an off-market deal. The next one we have is kind of on market. The difference being with, we used a realtor for this one. Either way is great. Generally off market is a little more profitable. So we thought we'd walk you through this other one. This is the Portsmouth one. This was an 82% deal. Again, it's kind of, it's in the Portsmouth neighborhood, which is North Portland, kind of an up and coming part of town, but definitely really desirable. It's a little bit walkable, close to some great neighborhoods like Kenton and St. John's. It's also kind of in my neighborhood. So it's been really convenient to pop in on the remodel.

So this So this was a little bit of the story behind this.

We were under contract, we had our formal inspection, a few things came up, nothing major that we, we walked away initially because they wouldn't come down on the price. Then we came back, went back online and we purchased it for $460,000. And this was an 82% deal, which is again a little higher because it was an on-market deal versus off-market. So we always love off-market if we can. So going over the numbers quickly, purchased it for $460,000. The rehab was $94K. So the total all-in is $554,000. We just recently finished it and it's went on market, under contract at $675K, which is super exciting. And then just going over the rest of our costs, the holding costs were about $37K, closing costs about $2K to $3K. We used a private money lender, which is great. And those 9.8%, 3 points. And then the timeline was 3 to 4 months. And so our projected profit on this one is $47K, which isn't bad. Wasn't too bad. And it was a pretty good lipstick flip, just new carpet, fresh paint, fresh fixtures and whatnot. So that is our last case study that we have.

So as we shared in the opening, we really want to be candid and open about some of the myths that are surrounding investing and flipping. And, and that's fine. It's just a way to kind of tackle some of those maybe concepts that you might be scratching your head about. So we just, we call this our Mythbusters. There is this idea idea that investors can fast close. Yes, they absolutely can close faster than traditional loans. However, why give up that inspection period when it could cost you thousands of dollars, especially in older homes? So even though hard money lenders are a lot quicker, they still require a lot of paperwork, a lot of back and forth. So this notion of a 1-week fast close really is probably a bit of a unicorn. So give yourself some time. Nobody's going go anywhere. Yes, it's faster than 30 days, but definitely not a week. So do your due diligence and keep that inspection period. This idea of as-is, absolutely, we buy properties as-is. But the big but is, we don't go in and say we buy as-is without a caveat of saying, if there's some larger repairs, we will take that off the offer price. So if we hadn't anticipated a $10,000 repair on a roof, we're gonna go back and negotiate that with the homeowner. And this means they could still walk. However, it just means that we don't erode our profit margin. So we just be— we would just be careful to use that word as a kind of a blanket statement without any contingency. The other mythbuster is all cash. I think there's this perception we show up with a big fat check or just dollar bills that we hand out at closing. That is not true. You're still working with lenders, you're still working wires, and banks. And even though hard money lenders definitely, as I spoke to, can move more quickly, and it's considered as cash, they will get a wire. It's not this— there's still a lender involved. So we're also very cautious of saying all cash, and we definitely consider it more as same as cash. And we're very transparent that we are working with lenders. Lastly, this idea of golden formula. Again, this might be too, too industry-specific. So However, just want to share there is this idea of the formula being 70% of your ARV minus your pairs is your offer. Now, when homes were $100,000, that, that delta, and that percentage of 30% wasn't very large, because you think about it, where does the other 30% go? And that was really allowed for the holding costs and also any potential like bumps or unexpected expenses. However, the reality of homes being a lot more expensive, $500,000, $600,000, $700,000, that 30% of the golden formula just doesn't make sense. So those, therefore, if you use that, it makes it really difficult to be competitive in the market with your offers and kind of unrealistic. So we just say, that's why we really are comfortable giving 75 to 80% offers, and we still are making really nice margins on that. So just wanted to, yes, speak to that as well. What do you got, Shona? Are you taking us home?

Yes, I'll just one last thing, just that forgo inspections, we do believe in doing your due diligence. Like, again, we love the walk and talk inspections because they're generally a lot more affordable. You just, we just walk around with the home inspector and take notes and he'll just like inspect everything and we do this and we're in Oregon. So we have, we often have buried oil tanks, super exciting and super exciting sewer scope. So we do do that. And again, we don't ask, we don't ask homeowners ever to fix it. But if we do, as Pasha said, uncover like a sewer that has to get replaced, that could be upwards of $10K. So we're going to have to renegotiate. So, you know, and I think we do believe in like, unless you're super experienced, like bring in some experts or get your contractor to go in the crawl space and just check out all the nooks and crannies so you know what you're getting into. So then we thought couple more tips, we thought we would share some kind of some tips. So, you know, I think you hear this a lot, just be active, make offers, you know, you're, you're not going to get them accepted. And sometimes it's, you know, you just have to practice. And the more you do it, the easier it gets, especially when we're kind of doing off market, it might feel a little uncomfortable, because people have this idea that their houses are worth so much. And if they're, you know, retail value is different when a house is fully remodeled, then, you know, sometimes neglected maintenance or whatnot. I think mindset is something else that comes up a lot is It's, it's, this is a really fun business. It's a lot of hustle. It's great. But I think you really have to keep educating yourself, listen to podcasts, listen to books, network, find an amazing partner. Like we've found each other. We're so grateful for that because it's, it's definitely ups and downs, but it's all about mindset and it's, it's a great business. But I think just keep educating yourself, keep getting inspired. Again, just kind of basic set goals, keep yourself accountable. You're going to call X amount of people cold calling, whatever kind of marketing you're doing. Just make sure that you're keeping that top of mind. It's easy to get. Really lost in the weeds like these flips we've got going on. It's just you get— you start opening Amazon boxes and just getting really in the weeds, and not— you're working in your business, not on your business. Um, again, I mentioned this, find a partner. It's way more fun. Tasha's talked me off the ledge multiple times when things were not on track. So I think I'm already half gray by the all gray. I didn't have Tasha keeping me, um, losing it. Again, practice analyzing, you know, there's a lot of great calculators. We're big fans of BiggerPockets. You just kind of punch in your numbers. I need— it's, it's— this is a numbers game. I don't say I love math, but it is so critical to know your numbers and, you know, don't get dealitis and just want to get something so bad because if it's a bad deal, it's really not worth it. Again, I think be genuine, be authentic, be transparent. There's, there's some shady characters in this business, you know, just be, be honest, like give homeowners their options, explain why you're giving them price, like explain your numbers. Be a resource. If they're better off with a realtor, then recommend a realtor, right? We just want to be— we want to help people as much as we can. And something else, you know, we're doing off-market deals. I think it helps to kind of demystify the process. Most people are used to working with realtors, and this is one of the biggest financial transactions they'll probably make in their lives. So you want to explain, like, we go through an escrow company, it's all formal, there's contracts, but just kind of explaining the timeline and an inspection period and Just because if you don't do this every day, it's a little overwhelming. I'm sure if you imagine buying your first house, it was like all new and very, just a lot to take in. So high level here, educate, be a resource, owners know they have an option, build your team, keep networking. And first, and then lastly, just keep hustling. That's what it's about.

I think lastly, we've been kind of touching on some of these resources. Every, you know, the more you systemize your process, you're able to really work on the bigger stuff. As Shona said, it's really easy to work in the business rather than on the business. So, you know, we've alluded to PropStream, big fans of Bigger Pockets Pro. They got great calculators and just every subject is tackled on there. Get your subscriptions from multiple sources. You can get it from PropStream, title companies, Probate Daily. Big fan of Carrot Websites. They have a great way to just kick off your website and really optimize it for SEO.

Live on—

I'm sure we all are living on Redfin to look at the comps and look at what's coming available. As Shana said, know your numbers and Google Sheets and just, just Google in general. We are— use all of their, all of their tools. AirDNA is a great tool to analyze any short-term rentals. Mash Advisor, Rentometer. If you want to get really design savvy about your business cards and presentations, Canva is a great tool. So those are just the really high-level some lists and resources we use. But anyways, we hope this valuable. Thanks for allowing us and giving us this opportunity to talk. We are very accessible, so please follow us at brickandbloom.co or PNW Pasha Buys Homes.

Yeah, likewise. Yeah, please follow us. We always appreciate reviews since we're new, we're launching this podcast. So we're at brickandbloom.co, or I'm also as Shona Buys Houses on all social. So thank you so much for tuning in and yeah, stay tuned for more coming up. Yeah.