Tim Bell property analysis 9

Now remember, this whole process is for the purpose of coming up with a dollar figure, as we can see on our, on our formula. A dollar figure that we know is a price that we can offer on the property. It's the answer to the question, how much is that property worth to me as an investor, whether I'm going to do a fix and flip or if I'm going to do a wholesale deal. How do you. How much is that property worth to me? That's the purpose of the formula. Here's the thing we need to remember. In virtually every market in the United States of America, now, things are moving quickly. We've got to run through this formula quickly. Ideally, we want to get to the point where we can pull up the calculator on our cell phone and we can calculate those figures for when we're standing there in the house. That's the ideal thing. We, we want to calculate those figures on the calculator in our cell phone while we're standing in that house, while we're looking at that house. Okay. As a consequence of that, we have to recognize that all of the numbers in our formula are not necessarily exact. They're just a pretty good guess. That's what they are. Now it's okay for us to use a pretty good guess to make our offer. Why? Because we have our inspection contingency clause and we have our sole remedy clause that we built into our contracts. So let's say that going through our formula, we get our after repair value, right? We get our general cost pretty good. We put in a reasonable amount of profit in there, and then we get to our repair cost. Let's say that we underestimate the repair costs. We used the chart. We were off a little bit. Chart will actually be very accurate. And this has been thoroughly tested all over the United States for a couple of years. Several years. Well, by five years than I know of anyway. And it just works. That's why I have these charts for you. Okay? But the point is, let's say, for example, that you're off a little bit. Let's say in our standard formula, we had allocated 30,000 for repairs. Remember the example we've been using throughout these lessons? Well, let's say that your contractor comes in, so you make the offer. The offer is accepted by the seller, and then you're going to go back in as a fix and flip investor and you're going to pencil down hard on all the figures in your, your formula. You're going to re verify that after repair value with your Agent, you're going to calculate those general costs using the pro forma proposed closing disclosure statements and the other information from the other providers like we talked about in that general cost or misc cost section. You're also going to calculate how much time you're going to be in the thing, which will have a bearing on how much profit you're going to have. And make sure you built in an appropriate amount. And then you're going to have your contractor actually come out and give you a bid. Again, this is if you're doing a fix and flip after you have the property under contract, after the seller has agreed to your price, then and only then do you have your contractor come out and give you a bid on that property. See, if you've got the property under contract, then at that point it's much more likely you're actually going to hire that contractor to come out and do the work on the property. So at that point you can have them come out and give you a bid. Now, let's say, for example, that you got all your numbers right, except for that repair cost. Your contractor comes in there and says, you know what? There's no way I can do this place for 30. It's going to be 40. Okay, so what could you do? Well, because you have an inspection contingency clause in there, you could go back to the seller and you could say, you know what, Ms. Seller, I'm sorry, You know, when I originally offered you 110,000 for your property, I thought the repairs were going to be 30, but you can see by my bid sheet from my contractor here, they're going to be 40. So as a consequence, I can no longer afford to pay you 110 for the property. But if you'll lower the price down to 100, then we'll carry on with the contract. Otherwise I'm going to have to cancel the contract based on my inspection. At that point, you're in a place where you can renegotiate if necessary. So again, if you're going to do a fix and flip on the property, you're going to use these guesses to make your offer. Once your offer is accepted, then you're going to go back and pencil down hard on all the figures in your formula, making sure you got them accurate. And then if you find any inaccuracies, you either renegotiate with a seller or you cancel based on your inspection contingency clause. That's why there's no risk in this thing. That's why I'm saying Your Friday night date is your maximum risk because even if you cancel after your inspection period, you could lose your earnest money. But that's all you're going to lose. And if you got $100 earnest money in it, then it's Friday night date. So again, you want to use this guess method to start with, knowing that it may not be perfectly accurate. It won't be perfectly accurate, but it will be adequately accurate to give you the figures you need. Now, if you're just going to do a wholesale on the thing, don't even bother to go back and check again on the after repair value, the general cost, the profit, or the repair cost. Do not call your contractor and have your contractor come in and give you a bid if your intent is to wholesale the property. Why? Well, I'll tell you why. It's because the person who buys buys that wholesale property from you. You're typically a fix and flip investor. They're not going to trust any of your figures anyway. They're not going to believe a word you say. They're going to do their own independent verification of the arv, their independent verification of the costs, the general costs, holding costs, carrying costs, sales costs, closing costs, all those things. They're also going to do their independent assessment of what they think the profit should be and they're going to do their own independent assessment of what they think the repairs should be via their own contractor. They're not going to trust you and they're not going to trust your contractor. I can remember years and years and years ago, I was in Wyoming, out in the middle of nowhere. I can't even remember what town it was, but I was driving through Wyoming and I stopped this little old fashioned general store. It was many, many years ago. And above the counter they had a sign. And the sign said, in God we trust all others pay cash. Yeah, funny, right? Well, I've taken some literary license with that saying on that sign and I've applied it to real estate. And here's what I say. If God himself brings you a property and says you need to buy that property, don't even hesitate. Anyone else do your own due diligence on your figures in your formula because they may be lying to you about the after repair value, the holding carrying, closing sales costs, the profit or the repair costs. Make sure you independently verify all that information independent of what someone tells you, it should be okay. Again, if someone's trying to sell you the property, like a wholesaler for example, and you're thinking about doing a fix and flip on the property. Make sure you verify all those figures yourself, because they may not be telling you the truth. Okay, so that's basically how that works. Okay, so now we've gone through entirely through our formula again. We've gone through the after repair value, we've gone through the general costs, we've gone through some ideas for profit, and we've gone through the ideas for repair. Now we've got our bottom line. Now it's time to decide whether or not we want to make an offer.