14: Wealthbuilding Tip: MLS vs. Off Market Investment Properties

Welcome to the Purpose Driven Real Estate podcast. This is where passion meets purpose in an ever changing real estate market. I'm your host, Steve Valentine, former real estate agent turned real estate entrepreneur, speaker and guide to all things real estate. And this is my co host, paige tons, former D1 college athlete turned real estate adultrepreneur. Whether you work in the industry or you are a consumer of real estate, with each episode we intend to raise the bar in our industry and show you the purpose behind every piece of real estate in your life. What's up? Everybody back? How's it going, Paige? Pretty good, pretty good. You're still smiling. That's good. Been giving me grief all freaking morning. So let's get to it. What are we doing today?

Today is a wealth building tip and we're talking about MLS buying on the MLS versus buying off market invest or off market properties or off market investment properties. So what are the differences between.

What the hell is the mls?

Well, I was just gonna say, can you help explain what an MLS property is and. Or a listing versus an off market.

Okay, let's. Let's get through the acronym MLS is multiple listing service. So that's where us realtors go to place houses on the market. Why are you laughing? So we're talking about MLS listings. So multiple listing service, which would typically be listed by a real estate agent like ourselves, or an off market property, which would be something that we might acquire from a consumer that wanted to sell their house in as is condition, maybe with a tenant in it. Those types of things that would. You want to know?

Yes.

Okay.

And off market properties. I don't. You can get off market properties from other wholesalers.

But what's a wholesaler?

A wholesaler is somebody who is purchasing homes undervalue, but never really purchasing, just purchasing the paper and then selling it to an investor.

Okay, so a wholesaler is somebody that. And that's a. That's a loose term kind of thrown around. And so you understand what a wholesaler is. They are typically somebody that never closes on house. So they will write the contract, they will get it locked up is what they call it. They'll have an inspection period, essentially. That inspection period essentially is used to find a buyer for that contract. And they will receive what's called a wholesale fee. A wholesale fee can be anywhere from 5,000 to $10,000. Kind of replaces sometimes, I guess a commission if you look at it from that standpoint. But that's certainly a possibility to find stuff in the wholesale market. And there's a lot of that going on right now.

And then we are the other source for off market properties. We're always a buyer and buying lots of different kinds of properties all over the place, different conditions, whatever it is.

Yeah. So for the agents out there or for the consumer, you know, if you know of something, maybe you own a house, maybe your friend owns a house, maybe somebody inherited something, or if you're an agent, you might have a client that has a house in disarray and you're not ready to list the property disarray. We've seen a few of those where you're not ready to list it and you need a simple solution or your seller needs a simple solution. You know, the Valentine Group, we're always a buyer and always willing to make a win win situation when it comes down to this. Part of the reasons we can do that is because we have the rent renovation piece in place and it makes it real easy. So not only do you have renovation, but we also have the funds in place to make that stuff happen. So always keep that in mind if you're looking for that simple solution. That we can certainly provide that for you.

Correct. So.

Correctamundo.

What is the so why would an investor want to purchase something off market rather than on the mls?

Well, whenever you're trying to build wealth, everybody says it, you know, the deal is always in the purchase. You know, you're always looking to find the best deal when it comes down to purchasing the property. So when you look at, you know, the stuff that we've bought and that we've acquired for our rental portfolio, for your rental portfolio, it's never been something that was on the MLS market. And here's why is that once you're into the MLS, you're really dealing with retail. For the most part, 99% of the stuff that's on the market in MLS is going to be priced at retail because you have commissions involved, you have closing costs, you have all these different things. And people are doing the retail business. There's a lot of people and places that you can find and buy that are going to be off market. So off market is something that's not in the mls. It's typically not subject to sales commissions. And you know, you're usually paying the closing costs on, but you're usually finding something that is in disarray, in need of repairs. Sometimes they'll be in good shape because the owner needs a simple solution. And keep in mind that if you're investing in real estate, you may not need to buy something if you're not flipping it and you're keeping it as a rental or an investment, you may not need to buy it at 75 cents on the dollar. You may be able to buy a rental property $0.85 on the dollar in order to keep that. So you've bought, you know, in the current market you're bought 15% equity, which you know, in some cases that's like 25 grand, you know, when it comes down to it. So rather than going if you have two houses side by side. So let's take right now, quick example, which would be really good is you look at the property on Evans that we sold at 35th Avenue in Thunderbird. So we bought that house for 150ish, we put about $55,000 into it and we sold it for 255. So we made about a $20,000 profit on that house after about four months. But think about if you had bought that as for the 150 off market and you put that money into it, but you didn't sell it looking for a profit. Now you have a rental property at 205, you have no, you have your renovations into it, but you have almost 40,000, $50,000 worth of equity in the property sitting there because you bought an off market deal and then you put the renovations into it and now you have got a property with equity. You'll think about this. If you do it the way we've structured our rentals and how we kind of go through first and seconds, which is, it's part of our wealth, building blueprint and showing people how to do it is, you know, that property can then be refinanced. Getting all the cash back from the repairs and actually using the equity as your down payment for an investment property, well, not for another one, but like that particular one, if you did a non cash out refinance, you have $50,000 equity, which is just about 80% loan to value. So now you've gotten your cash back from your repairs, you've refinanced the original hard money or however you financed it, and you have no money into your rental property.

Got it.

And you have a property that's been fully restored and repurposed for the tenant, which is gonna give you maximum rent. And so for that house, if you really followed that one, you could be into that house and you know, your 14, almost $1,500 a month rent is the current rental on that. And a 205 mortgage payment, you're running about $1,200 a month. So you do have maybe a few dollars cash flow, not a lot by the time you put some of the other costs in. But you're in and out and you have $50,000 equity that you bought basically from going turn it over and go back to the other property that we have in the same neighborhood that we just bought. Similar square footage doesn't need as much work. That one we paid 164. And you could have gone through and literally put paint and carpet in that house as a rental. You didn't have to do the full rental. I think right now we're in the process of renovating it to repurpose it and sell it. But. And part of that is because we were at our cap with our rentals right now. But that's what you want to be looking for. Something that you can find that might just need some paint and carpet can put a tenant in and call it a day. So that's the difference in buying the MLS versus the off market. Is that reason because you're buying equity and you're buying value in order to set yourself up in a good position for owning that investment property?

Right. So when would it be strategic at any point to buy on the MLS as an investment property?

I think it was. I think it was strategic. I mean, it's always strategic as long as the numbers work, you know, and that's, that's what you really look at. If you're playing the long term game of real estate investment and you decide to pay retail for something, that's okay. Let's say it's fully renovated, it has a tenant in it, it's getting good rents, you can just straight out buy it, finance it conventionally. You don't have to do any of the funky creative stuff. And it's for long term. I think it's absolutely okay to do that as long as somebody's really looking at. You're looking at location, you're looking at neighborhood, you're looking at rents now and future. I think those are all critical. And you just want to be careful with what you're doing and how you're setting yourself up. So if it's, you know, less than five years that you're going to hold it, I don't know that you want to buy something retail because remember, when you go to sell it, you have all those costs again. So you're almost buying those up front when you're buying something off market.

Interesting. It just kind of reminds me a little bit of kind of my strategy right now. And Buying and wanting to teach the millennials how to do the same thing. But a lot of them will probably be more interested in looking at something on the MLS rather than off market. Or I get some people that are more interested in that just because we don't have everything and every and anything and everything that's on the mls. Like I have some people who are interested in the Scottsdale areas. Would it still be beneficial to buy like in the Scottsdale area a little bit higher price range than, you know, the North Phoenix or something a little bit lower to then maybe make that into a rental later down the road?

Everything's going to depend on numbers. So whenever you're looking at your cap rates, you know, cap rates is the total investment divided or the income divided by the investment gives you a cap rate. And that's one of those pieces. What you have to look at is that will the mortgage payment that I have in that property, if it's rented, is it going to cover it or break even or am I gonna be negative and can you afford it and is it worth it? So if you're buying something retail and then you're gonna be negative each month on it, it's probably not really worth it, depending on your strategy. There's some properties that we own for a while that were negative, but they were a placeholder. So we were holding them with tenants in place for two or three years until we were ready to sell because maybe it didn't fit in our wealth building blueprint. So that, you know, we just kind of walked through that process and said, and this really doesn't fit. And sometimes it depends on strategy when it comes down to buying that retail piece.

Okay, so what is the advantage of buying something off market when you're paired up with Valentine Group?

The advantage with us is that we have, we have so much coming in the relationship that we've made with other agents, with wholesalers, with people. Plus on Valentine Sales and Management, which is Debbie's company, my mom, we have a lot of investors over there that decide, hey, we want to go ahead and sell our house with a tenant in place. That's an off market deal, sometimes can be bought below retail with tenants in place, property management in place. Because we're so vested in the investment game, we know a lot of different areas that it kind of goes back to one of our recent podcasts where we talk about the wealth, the wealth building blueprint where you go through and you go, hey, you know, let's look at your situation and really figure out is this long term, short term, and how do we get there? And that's what's, that's what's most important. And that's the advantage of doing the investment process or going through the wealth building program with us, is that we can go out and find and tailor to your needs and to your specific wealth building goals.

I think one of the coolest things that we do at Valentine Group is we have the off market inventory. And when a rental client is interested in building their portfolio or adding or even starting, but they don't have the time to make the renovations or even like paint, carpet, and we have the tools to be able to do that. So we can go do that and then wrap that all up in a package.

So you asked. One of the advantages. You write the package. So you ask. One of the advantages is that if we take an off market deal. So let's go back to the same house on 35th Avenue that we talked about. If we had an investor right now that said, hey, I'm really looking to buy some rental properties and I want them to be turnkey. Well, the advantage to working with us is they can look at our off market inventory stuff that we might be repurposing to sell to an end user, and we can actually pull that back and go, okay, here's the bottom line or here's the baseline, work through the budget. Wendy can renovate it. So basically we own it. We're doing it with a deposit that this person is going to qualify and buy this property at the end price. And they get to. And here's like the biggest advantage anything, they get to buy that house from us, renovated, tenant in place, all wrapped up in a little bow to where most of the time, if you were to buy that. So let's walk through it backwards. If we sold it to them for 170, you know, we made a $10,000 profit in that deal. Rather than flipping it. Right. Or repurposing it, they got it for 170. Well, they're putting $34,000 down, which is 20%. Right. And now on top of that $34,000 they put down, they have to put another $25,000 cash out of pocket to do renovations. So now they're $51,000, is that right? No, it's more than that. It's like $56,000 out of pocket. Right, right. So versus if they went the alternative way, working with us on it, when we own it and go through the process and renovate it, then they buy it from us at A finished price. So let's say we had worked through the numbers and we say, okay, well after repairs, after holding costs, the final price is going to be 210. Estimated value is 230. So they're buying it 20 grand below market. It's renovated. While they're going through the financing process, we're in the process of putting a tenant in place.

Right.

Okay. So they're way ahead of the game and now they're $200,000. They only have $40,000 out of their pocket, 80% loan to value versus having $56,000 out of pocket. So by doing it that way we actually put more money in their pocket in order for them to invest in more or not have so much cash tied up in one property and then.

You get a better return on it when you don't have so much cash.

Right. Well, it also gives you the ability to invest in something else or at least have that cash for reserves or whatever the case may be.

Got it. So wrapping up this wealth building tip, where can the listeners find off market properties?

So Valentine Group, AZ.com or Ivalentine Group, either one, they can go into the investor section and subscribe and that's where they're gonna see some of our off market opportunities. That's where they're gonna be able to subscribe and start seeing the investment tips and the wealth building tips and also get set up to come in if you're interested. Definitely put in the comments when you subscribe that you'd like to do a wealth building blueprint so we can kind of start that process. Cause part of that process in investing is, you know, again doing the wealth building blueprint. I can't get that word out today. Blueprint. Getting that blueprint done and also getting them in touch with one of our preferred lenders to go through the process of, hey, this is what we need to do in order to get you into an investment property. That's what we got today. That's our wealth building tip and we hope you enjoyed that. And again, if you're looking for any sort of real estate advice, investment advice or you know, if you're in the real estate profession, don't forget about the limitless project. That's@stevedvalentine.com and we're in that course really going through the limitless mindset. And again, if you're looking to invest in real estate, and I do believe that you're an investor no matter when you're buying real estate, whether you're a homeowner or you're looking to invest long term. We've got your solutions for you and we'd love to handcraft one for you. We're out. Have a great day. Thank you for listening today. If you loved this episode, please share it with somebody you think would also love it or be inspired by it. Without you guys, we can't create more purpose. Please leave us a review and a truthful comment or thought. And until next time, this is Purpose Driven Real Estate.