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Finding Deals

James Orr

Daily Marketing Checklist For Real Estate Entrepreneurs

Wholesaling Process For Wholesalers

Find Deals

Analyze Deals

Negotiate Deals

Control Deals

Sell Deals

Collect Fees

Really, How I Find Deals…

• Do it yourself or hire someone else to do it for you

• Will cover as much as possible for both:

– Outside the MLS

– Inside the MLS

• Will focus on how you can do it yourself

Two Primary Groups For Finding Deals

Inside the MLS Outside the

MLS

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Why Outside The MLS? Why Outside the MLS?

• No and low money down transactions

• Creative financing without banks

• Improved cash flow

• Negotiate in a vacuum

Lease-Purchases Inside MLS My Favorite Way Of Finding Deals

Outside The MLS

Mail Stats Mail Log (With More Stats)

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Cost To Mail Morning Discipline System

• Import/update properties into my website’s system each morning

– That’s where I keep track of properties

– You may do this manually using the full MLS if you have access or email lists of properties from your agent

– As of making these slides I am only doing this for all properties in Fort Collins and Loveland

• May be expanding it

Sort Into Subdivisions

• Through a combination of automated and manual matching, I sort each property into its official subdivision

• Use subdivision data so this is important – Can’t rely on agents doing it correctly

– Old Town Fort Collins is a mess!

– Actually a very complicated problem with lots of other quirky issues

• About 850 subdivisions in Fort Collins and Loveland alone

Properties To Analyze

Universal Property Search Key

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Start At Top… Analyze Each Property

• Primarily For Two Different Types of Buyer:

– Buy, Fix and Resell

• Focused on value – Profit A, B and C

» A = Price/Total Sq Ft

» B = List Price to Accessed Market Value

» C = Price/Finished Sq Ft

– Buy, Rent and Hold

• Focused on income – Net Operating Income

Profit A Calculation

1. Take 20 most recent sales in subdivision

2. Calculate sold price/total sq ft

3. Sort the list by sold price/total sq ft

4. Pick the middle most one (median)

5. Compare median sold price/total sq ft in that subdivision to list price/total sq ft of the property you are analyzing to determine the difference

6. Multiply the difference by the total sq ft of the property you’re analyzing to get a gross estimate of possible profit

Profit A Calculation Example Best Properties Using Profit A

Profit C

• Similar to Profit A, except use sold price/finished square foot instead of total square foot

Best Properties Using Profit C

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Profit B

• Compare list price to the market value that the county has for tax purposes

Best Properties Using Profit B

Interesting Lists

• Profit A, B and C are all positive

• Other signs of motivation and lists from the MLS you can find: – REO, HUD and other owner

– Lease-Purchase and owner financing

– Free and clear

– Short sale

– Vacant

– Described as fixer upper, handyman special, TLC, etc in notes

Pull Up MLS Sheet

• Read the MLS sheet and look at photos • Determine if it is:

– Fixer Upper • We get paid for adding value – fixer uppers represent an

opportunity

– Just Paint and Carpet (Light Fixer Upper) • Typically these REOs will be bought by owner occupants for

very close to retail • Short sales can still be good candidates for these especially

with listing agent cooperation

– Not A Fixer Upper • Unless there is another way to add value (and there are

other ways), these tend not to be high probability deals

Determine Likely Debt

• If properly motivated, could they even accept our offer?

• Free and Clear or Mortgaged

• Usually do this on the public records tab in the MLS

Review Property History

• Are they selling it for what they bought it for?

• Less than what they bought it for?

• Did someone recently buy it and then relist it for sale for a much higher price?

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Subdivision Map Homes For Sale In Subdivision By Price

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Looks Interesting? Determine ARV Comparable Sales Table

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Comparable Sales Table Comparable Sales Table

Comparable Sales Table Comparable Sales Tools

Comparable Sales

• Plus a bunch more, but you get the idea…

• There is both a science and art to determining value

Enter Your ARV, FMR and Repairs

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Improvement Estimator Cash Offer Calculation Example

How Does This Home Compare?

• To other homes for sale in the same subdivision? – Price

– Price/Sq Ft

– Price/Above Grade Finished Sq Ft

• To other homes that sold in the same subdivision recently? – Price

– Price/Sq Ft

– Price/Above Grade Finished Sq Ft

• Report on this in both gauge and list format… just scroll through… drill down to see details as desired.

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Calculate Net Operating Income

• Relatively unusual to do this calculation on single family homes

• Automatic on each property

• Then calculate: – Capitalization Rate

– First Year Cash on Cash Return

– 5 Year Internal Rate of Return

• Allows you to then sort the entire MLS by most profitable cash flow properties

Capitalization Rate

• Divide Net Operating Income (for the year) by purchase price to calculate Capitalization Rate

• Can sort the entire MLS by highest Capitalization Rate since I do this for every property

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Best Properties By Capitalization Rate Cash on Cash Return - Year 1

• Next, determine what your cash return on investment would be in year 1 for – 3 different down payment amounts

• 20%, 25% and 30% down

– 2 different closing costs scenarios • Seller paying all closing costs and you (as buyer) paying all

closing costs

– 2 different property management scenarios • Self managed versus professionally managed

• That’s a total of 12 different Cash on Cash return on investment calculations for year 1.

Best Properties By Cash on Cash 5 Year Internal Rate of Return

• Next, determine what your internal rate of return would be

– buying the property with 20% down

– selling it in 5 years later

– collecting cash flow for the 5 year period

• Based on the following economic model and assumptions…

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This is most like how I personally analyze properties for my own portfolio.

Best Properties By 5 Year IRR

Popular Fort Collins Subdivisions

• The 5 sided offer scale: – PV – FV – N – I/year – PMT

• Got to start thinking in multiple dimensions to maximize deal flow

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• 100:10:3:1 Rule – “Real Estate Riches” by Dr. Dolf De Roos

• 50:1 – “No Down Payment” by Carleton Sheets • 30:10:3:1 – “Millionaire Real Estate Investor” by

Gary Keller et al • 30:1 – “Weekend Millionaire's Frequently Asked

Real Estate Questions” by Mike Summey and Roger Dawson

• Outside the MLS different than inside the MLS

Owner Financing

Wrap Financing

Loan Assumption

Rent To Own

Installment Land Contract

Subject To

Do you get the deed at the beginning? Y Y Y N N Y

Down payment required? U S S U U S

Paying down on loan? U U U N U U

Requires traditional bank credit approval? N N U N N N

Triggers "Due On Sale" clause? N U N S S U

Allows you to refinance with new loan? Y Y Y S U Y

Must seller foreclose to get you out? Y Y Y S S Y

Does all of your monthly payment apply toward purchase? N N N N N N

Does part of your monthly payment apply toward purchase? U U U S U U

Does all of your down payment apply toward purchase? Y Y Y U U Y

Do you need an attorney to buy with this strategy? Y Y Y Y Y Y

Is the down payment non-refundable? Y Y Y U Y Y

Are the entire monthly payments non-refundable? Y Y Y Y Y Y

Good in a market where home values are going up? Y Y Y Y Y Y

Good in a market where home values are going down? S S S U S S

Good in a market where interest rates are going up? U U U S S U

Good in a market where interest rates are going down? U U U Y U U

Requires seller credit approval? Y Y U U U S

Do you get tax benefits of ownership? Y Y Y N S U

Does buyer default harm seller? Y Y S Y Y Y

Saves expense of moving twice? Y Y Y Y Y Y

Can be a long term solution in one step? Y S Y S S N

Does real estate agent typically get commission up front? Y Y Y N N Y