Tim Bell property analysis 10

Now, once we've calculated all the numbers in our formula, we're either calculating it for a fix and flip, or if it's our intent to do a wholesale, we're going to take that extra step, subtract our wholesale fee. So now we've calculated our figures. Now we know what our offer price will be to the seller. We know the answer to the most important question of all for us as an investor, which is how much is that property worth to me as an investor, whether it's a fix and flip investor or as a wholesaler. Okay? We now have a dollar figure that we know we can pay for that property. We should pay for that property based on our reasonable rational guess type formula. Okay? All right. So then the next question begs itself. How do I know whether or not I should make an offer? Here's how you know. For example, you're going to find that the offer price, you want to compare your offer price to the seller's asking price. So we want to compare those two things, your offer price to the seller's asking price. Okay? So in our example that we've been using all along for a fix and flip deal, we've got $110,000 as our offer price for the fix and flip investor for the seller. Remember, that's what we've been working with. Okay? If you don't remember, look back and review that. Okay? Now you're going to find that the seller's asking price and the relationship between the seller's asking price and your offer price are going to fall into one of three categories. The first category, your price, will be significantly less than the seller's asking price. Okay? So in our example here, you're at 110 and the seller is at 200,000. Now, notice that's red in our information here. Why? Because in that case, I'm typically not going to make an offer. Why? It's just too much difference. We're asking them for too much of a discount. It's just ridiculous. I mean, let's think about it. If you truly believe that your house was worth $200,000 based on what a real estate agent told you or some other appraisal that you had or some other rational form of determining value, you came up with $200,000, you honestly believed it was $200,000, and I came in and offered you $110,000, how would you feel about that offer? Obviously, you'd be insulted, right? Well, I just don't think that going around and insulting people is a good idea. It's not terrible, but. And if you want to be more aggressive, you certainly can. But again, it's probably not the best thing to do. You're wasting their time. You're wasting your time, you're wasting everybody's time. And it's probably not going to work out. So in that case, I say don't make an offer. Now, the next relationship you're going to find between the seller's asking price and your offer price will be that they're close. You can see here that the seller's asking price is 135,000. Our offer price is 110. At that point. You can see this one's green. And the reason it's green is because now's the time to make an offer. Go ahead and make an offer on that property. Okay, 110,000 on $135,000 property. That's not an unreasonable, crazy, outrageous, low ball, insulting offer. It's okay, so make the offer. Now, occasionally you're going to find that your offer price is actually more than what the seller's asking price is. Now, if you find that, you have my official permission to do the happy dance for about 30 seconds. Woo hoo. Woo hoo. Woo hoo. Why? Because if you look at it in this example here, you're going to make an extra $20,000 in profit if you pay $90,000 and you calculated you could pay 110. Now, the reason you can do the happy dance for only 30 seconds is because you probably made a mistake. Okay? For example, what if the seller knows about a $20,000 foundation repair that you didn't take into account when you calculated your $110,000 offer price? It could happen. Okay, so this one is also green though. We're going to make an offer on this property too. And then we're going to go back in and we're going to try to figure out where we made our mistake. We most likely made a mistake on the repair costs or on the after repair value. Those are the two places that we're most likely going to make mistakes. Okay? Now, I have a rule that I suggest you use. You don't have to use it if you don't want to, but I suggest you use it. Because I find that when I use it, I get many more offers accepted. In fact, the number of offers I have accepted often doubles based on using this one rule. So let's talk about how this rule works. I call it the 25% rule. I just made it up from my experience and from helping Lots of people. And working with this for many, many years, I found that this just works. And so that's why I suggest it to you. So what we're going to do is we're going to take the seller's asking price, we're going to subtract our offer price, and that's going to equal the difference. That's going to show us the difference between those two prices, the seller's asking price and our offer price. Okay? So in our example here, you can see that the seller's asking price is 135,000 and our offer price is 110. That's a $25,000 difference. Now, once we've determined what that dollar amount difference is, we're going to convert that dollar amount difference to a percentage difference. Okay? Now we take the difference, which is the 25,000, and we divide it by the seller's asking price, in this case, 135,000. And that's going to tell us that we're asking them that when we make our $110,000 offer, we're essentially asking them to give us an 18% discount off their asking price. Okay, now here's the rule. If our offer represents less than a 25% discount off their asking price, we're going to go ahead and make the offer. If, on the other hand, it's more than 25%, then, then we're going to wait and see. Okay, 25% or more. We would wait and see. Here's the thing. As a property sits on the market, people are going to come in, they're going to talk about it, they're going to make offers, they're going to talk about the price and various different things like this, and the seller will get a little bit of a dose of reality. Okay? You have to realize not all sellers are in reality when it comes to pricing their home for sale. They. There's no rule, there's no law that says a seller or a real estate agent has to list a property at a price that is reasonable for the market that will cause it to sell. There isn't any rule or law like that. They can list it at whatever they want. And some people do. Some people have emotional connections to their house. They also have ideas about the value of their house that are inappropriate or unrealistic and represent a figure that is just not realistic. Okay, that happens. You're going to notice. It happens all the time. Well, again, as these properties sit on the market, people are going to come in, they're going to make offers, they're going to give them lower offers. And eventually, in many cases, the sellers will come down and they will come into reality, because when they're up high, they're not reality based, typically on a house that needs work. Okay. So that's why I like this 25% rule now. You don't have to use it. I use it, and a lot of other folks use it because it allows me to get a lot more offers accepted. And it makes me seem to the sellers and to the agents and the other people in the marketplace as a more rational, reasonable investor. And that's why I do it, because it actually helps to value my time and it helps to value my seller's time also. So that's why we use this particular rule.