Tim Bell property analysis 1

Okay, so now it's time for us to talk about property analysis. Now, as we talked about in previous lessons, you can see here, there are three basic strategies to real estate investment. We talked about this, but just to remind you, there's wholesale, there's fix and flip, and there's buy and hold. Wholesale, of course, is wholesaling the property off, selling the property off to one. Typically of the other two types of investors, the the fix and flip investor or the buy and hold investor. We also talked about the fact that from time to time, you may actually sell your wholesale deal to a mom and pop homeowner buyer. That could be another choice too. But most of the time you're going to wholesale your properties to fix and flip investors and buy and hold investors. So that's basically how that works. Now let's talk about property analysis for each of these types of investment strategies so that we can make sure that we're building good deals for the next person. Remember, the number one cardinal rule of wholesaling is it's got to be a good deal for the next person. Okay, so let's talk about that. Now, here is our formula. Okay? This formula has been around forever. I first Learned this formula 1977 from my original mentor. He told me that he Learned it in 1962 from his original mentor. So this has been around for a long time, okay? You don't have to. And the reason it's been around for a long time is because it works. Okay? Now, There are some 21st century modifications we're going to make to it, but this is the basic formula. Now, we will go through each of the items that are in this formula. This is the wholesaler's formula, okay? We talked already about the fact that a fix and flip investor and a buy and hold investor use a little bit different criteria. But the essence of this formula, of course, is the fix and flip investors criteria. If you notice all the information above where it says the maximum purchase price for the fix and flip investor, that is the fix and flip investors formula. Remembering, of course, that it's got to be a good deal for the next person. If we know that that next person is a fix and flip investor, which they most likely will be, and we understand their criteria, the formula, then we can build a deal around their criteria and therefore have a more saleable deal, a deal that that fix and flip investor will want to buy from us. Okay? That's the whole basis of this whole discussion. So we're going to talk about each one of these items that are in this list, in this formula, and we're going to go through all of them and I'm going to show you how to derive all of these ideas and all of these numbers very quickly so that you can analyze a property. Ideally, when you get into a property, you're going to want to walk around that property with the, the calculator on your cell phone. You're going to punch the numbers into the calculator on your cell phone and you're going to be come up, you're going to come up with the answer to the most important question of all, which is how much is this property worth to me as a fix and flip investor or as a wholesaler or as a buy and hold investor, how much is this property worth to me? That's the most important question of all, okay? And as a consequence of that, we're going, I'm going to show you how to quickly and easily derive all these numbers so that while you're standing in a property, you can punch those numbers in your cell phone and you can the calculator in your cell phone and you can come up with a reasonable answer to the most important question of all, which is how much is this property worth to me. Because once you've come up with that answer, you are now prepared to make an offer on the property. Okay? Using the contract circumstances that we talked about in a previous lesson, okay? Again, it's critical that you make offers on properties. Making offers is really what your business comes down to. If you're not making offers, then you're not going to get any properties under contract. If you don't get any properties under contract, you're not going to have anything to wholesale to anybody. So if you're not making offers, you don't really have a real estate investment business. You just have a time consuming, frustrating and expensive hobby. I will tell you, real estate is a wonderful business. It's the greatest business ever, but it's a terrible hobby. Okay? So again, you need to treat it like a business. Okay? So let's talk about the various different components of this formula. Now we're going to start a little bit at the bottom here. I want to talk about the wholesaler's fee or wholesaler's profit. Okay? Notice that's the second item from the bottom on our little chart here, on our slide here. And I want to make sure that you don't ever refer to your wholesaler's profit or your wholesaler's fee as a commission, okay? Don't refer to it as a Commission. It's not a commission. Unless you have a real estate license in your back pocket or in your purse, you cannot legally charge a commission for putting together two parties. Again, you've got to be a licensed real estate agent or real estate broker to do that, okay? So do not refer to any money that you make in your wholesale business as a commission. Do not use the C word unless you have a real estate license, okay? We refer to it as a wholesale profit or wholesale fee, okay? It is not a commission. It legally can't be a commission because you don't have a real estate license. Okay? So let's talk about the wholesale fee. Now, in the formula that I have here, you can see this is the standard formula I've been using throughout all of these lessons. We start with the after repair value and we subtract some things. We get down to the maximum purchase price for the fix and flip investor. And in this case, we started with a 200 after repair value. We figure something for the general cost, something for the profit, something for the repair costs. All of those are consequences of your fix and flip investor's business, not your business as a wholesaler. And so we want to make sure that we take those things into consideration. Now we're going to talk about how to figure out what those things are. That said, on the wholesale fee, some people, especially calculating types, engineers, accounts, people like that, they might look at these numbers and say, well, he built in about 10% of the after repair value for the general costs. He built in about 20% of the after repair value of the profit for the fix and flip investor. Therefore, the wholesaler's profit or wholesaler's fee must also be a percentage of the after repair value, right? No, that's not right. Now, in this particular instance, if you can, you know, calculate, you can see that the example that I've given of the $10,000 is about 5% of the $200,000 after repair value. Now, that's an okay place to be, but really the truth, the reality of what your wholesale profit will be is that your wholesale fee is not a percentage. It's just whatever you can get away with. That's what your wholesale fee is. So here's an example. You know that the buyer will pay 110. Why? Because in our formula, 110 works for this particular buyer. Okay? For example, the way this formula shows, you can see that if they pay us a $10,000 fee for the property, and then they do the fix and flip on the property, they buy it they fix it up and resell it, and all these numbers are right, they're going to make about a $40,000 profit. Okay. As a consequence of this, they're going to be okay with that. Okay. Would you pay $10,000 to make $40,000? Yeah. It's better odds than they give you in Las Vegas or Atlantic City, Right. Or at the casino down at the Indian reservation. Right? Yeah. So that's why I know that our wholesale buyer would be willing to pay that kind of fee to us because he or she is going to make a lot more money than that. Okay, so in this example, let's say, for example, you know that the wholesale wholesale buyer, your fix and flip Investor, will pay 110. You would like to make a $10,000 fee, a $10,000 wholesale fee. Okay? So you go to the seller, say, Mr. Seller, I'll offer you $100,000 for your property. Now, what if the seller says, oh, my goodness, 100,000. I couldn't possibly take 100,000 from my property. Okay, how much could you take? Says me? He says, well, I could probably take 105. That would be my lowest price, 105. Okay. So if you have a buyer that you know will pay 110, you have a seller that you know will Pay, will accept $105,000. The difference in the middle there is $5,000. That means your wholesale fee is going to be $5,000 on that particular transaction. Is that good enough for you? Probably so. Okay, now the next one numbers are all the same. You go to the next property, the numbers all the same. You make the offer at 100,000. Sellers says, oh, my goodness, I couldn't possibly accept 100,000. You say, okay, how much could you accept? Well, I couldn't do it for a penny less. My bottom line is 107. 107. So we have a seller who will sell at 107, a buyer who will pay at 110. That means we got a $3,000 difference between those two numbers. That means our wholesale fee in that particular transaction is going to be $3,000. Is that acceptable? Sure. Remember, with wholesaling, all you're doing is just shuffling some papers. You're just getting some signatures. Okay? It could take you an hour or two or three hours maybe to put that whole thing together, Max. Okay. If you're getting $3,000 wholesale fee for three hours worth of work, that's $1,000 an hour. Do you make that on your current job? You might, but you probably don't and it is good compensation. So, again, as far as the wholesale fee is concerned, as it says on the slide here, it's not a percentage. It's whatever you can get away with. Okay? That's your wholesale fee.