Making the deal happen

Jeff Corpuz

Real Estate Coach · Atlanta, GA · Member since 2009 · 30 posts · 7 votes

17y

Originally posted by Jeff Johnson:

In my last post I asked in detail how to find sellers and good deals. Now I want to focus on how to approach a potential customer. When trying to buy directly from a home owner how do you generally go about that. It would seem many times they are probably going to be very stressed and very leary of any investor coming to them about their home. How do you address there worries?

Once you have addressed that what is your general strategy for making the offer. I am guessing you probably have 2 or 3 options you would throw at them. I would love it if people who do this would give some details on how they make the offers and if possible a step by step account of how the deal really works. Things like seller financed and subject to are still a little confusing in the details. I get the idea behind them, but need to see from start to finish how one would go about setting up a deal like that and how to present it to the home owner.

I know I am asking for a lot here. But the more details I have the better I understand. And the faster I can get going. Need to get out of my Job as soon as possible. Its slowing taking extra years off my life.

Thanks everyone.

Hey Jeff,

First off, why do you think a seller would, "probably going to be very stressed and very leary of any investor coming to them about their home"?

In general, sellers are not like that, they're actually pretty open to working with investors, after all, we do provide the SOLUTIONS!

Don't walk into the business with the mindset that sellers are not open to doing business with you, because you won't be doing much business, so the first step would be to realize that sellers ARE in fact open to working with investors, especially investors that can provide real SOLUTIONS!

Making 2 or 3 offers to a seller is a GREAT strategy, and we actually implement this about 90% of the time in our own business...

Real Estate Investor · Lakeview, NY · Member since 2009 · 309 posts · 49 votes

17y

Jeff, I've been told, get VERY good at ONE thing first. Learning Sub 2's, lease-options, and all the other ways of providing a homeonwer with a solution, can take a good amount of time to REALLY get an understanding of all the ins and outs. Talk with Ryan Webber, I bet he'll say it took a lot of time and learning, to get where he is at with wholesaling. Or Nick J. with regard to Sub 2's, I bet his answer would be the same. There's a LOT to know about one specific subject, let alone 3 or 4.

I would say pick an area of RE. Whether it be wholesaling, Sub 2's, L/O's whatever. Get to be an expert in one area first, then move on to further your RE education, and become a master in the next area...make sense?

How do I know? I was in this very situation. I thought if I didn't know all these "solutions' I'd be potentilally leaving deals on the table. Believe me, it too much to learn right away or all at once.

IMHO

Norm

8 Reply

Justin S.

Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes

17y

Good advice Norm. Vote for you!

Jeff Johnson

OP

Real Estate Investor · Young America, MN · Member since 2008 · 18 posts · 1 vote

17y

Originally posted by Norm Chrostowski:

Jeff, I've been told, get VERY good at ONE thing first. Learning Sub 2's, lease-options, and all the other ways of providing a homeonwer with a solution, can take a good amount of time to REALLY get an understanding of all the ins and outs. Talk with Ryan Webber, I bet he'll say it took a lot of time and learning, to get where he is at with wholesaling. Or Nick J. with regard to Sub 2's, I bet his answer would be the same. There's a LOT to know about one specific subject, let alone 3 or 4.

I would say pick an area of RE. Whether it be wholesaling, Sub 2's, L/O's whatever. Get to be an expert in one area first, then move on to further your RE education, and become a master in the next area...make sense?

How do I know? I was in this very situation. I thought if I didn't know all these "solutions' I'd be potentilally leaving deals on the table. Believe me, it too much to learn right away or all at once.

IMHO

Norm

That is good advice. Thank you for that.

Real Estate Investor · Lakeview, NY · Member since 2009 · 309 posts · 49 votes

17y

SWEET!! I got a vote. And your welcome

Real Estate Investor · Lakeview, NY · Member since 2009 · 309 posts · 49 votes

17y

Sorry (one more thng).

As far as offer price. I usually look at comps, obviously. But my offer is based on RENTS too. I generally work backwards from the GR (gross rents).

Example:

I looked at a Triplex yesterday. Owner figured it was worth 90k..

I br $360
2 br $450
2/2 $550

Total of $1360 in rents
Operating expenses $680 (50% rule)
Desired cashflow $300 ($100 per unit)
$380 Debt service (prin & int.)

Offer $55000 (55k @ 7.25% for 30yrs = $375.19).

If they wonder why so low, I tell them exactly what your reading.

S B

Member since 2008 · 18 posts · 0 votes

17y

Originally posted by Norm Chrostowski:

Sorry (one more thng).

As far as offer price. I usually look at comps, obviously. But my offer is based on RENTS too. I generally work backwards from the GR (gross rents).

Example:

I looked at a Triplex yesterday. Owner figured it was worth 90k..

I br $360
2 br $450
2/2 $550

Total of $1360 in rents
Operating expenses $680 (50% rule)
Desired cashflow $300 ($100 per unit)
$380 Debt service (prin & int.)

Offer $55000 (55k @ 7.25% for 30yrs = $375.19).

If they wonder why so low, I tell them exactly what your reading.

Could you expound on the 50% opersting expenses? Is this a common formula? What does it cover?

Dustin Phillips

Real Estate Investor · Indianapolis, IN · Member since 2009 · 161 posts · 46 votes

17y

S B

Type in 50% and 2% rule in the search box to get more detailed info... However, a quick synapses is that in order to own a property all expenses will run you on average 50% of the Gross rents... This includes everything you can think of and things you may not. That leaves you with your NOI before debt service.

The 2% rule states that you would want 2x the purchase price + rehab for rents (I.E. $100k property would yeild you $2k in rent for it to be a good deal). Again search more on the topic...

Good Luck

Real Estate Investor · Lakeview, NY · Member since 2009 · 309 posts · 49 votes

17y

The 50% rule is a guideline to evaluate a deal relatively quickly to see if it will cash flow.

It states that 45-50% of gross rents will "eaten up" by expenses.

Example: 4 unit
$500 per unit
$2000 GR
$1000 expenses
$400 desired cashflow ($100/unit)
$600 left over for Debt Service (P&I payments)

Possible Expenses:

Taxes
Ins.
maintainence
Property management
Vacancy
Water
Garbage

This does not include utilities paid by the landlord. If utilities are paid by the landlord the expenses will be significantly higher. Just say NO to paying utilities (MikeOH copywrite)

Hope this helps. Sometimes it's hard to put it on paper.

Norm

Curt DavisBusiness Member

Flipper/Rehabber · Memphis, TN · Member since 2008 · 5k+ posts · 2k+ votes

17y

Jeff,

Though there is a lot of great information on this website, I would suggest investing some money into your education and buy a course that relates to what you want to do.

I am not promoting anyone's specific course but you need to look into it.

Join your local real estate group and take advantage of the experience there as well.

Curt Davis - KAIZEN Realty538 Reviews

Website View Page

Peter Giardini

Rental Property Investor · Baltimore, MD · Member since 2009 · 624 posts · 559 votes

17y

The first time I had a seller respond to a post card I was a nervous wreck. So nervous that I didn't show to the appointment I made to discuss the deal further.

Good thing I got over that fear...

I learned two things...

1. Every seller has a problem and your job as an investor, as Jeff C. indicated, is to provide solutions. So, always look for ways to solve their problem. Sometimes it can be as straight forward as just purchasing the property from them. The more creative you try to be... the harder it will be for the seller.

2. The person who asks the most questions... wins. And by wins I mean obtains the best possible terms and hopefully these will be your terms.

So... go into every meeting prepared to ask lots of questions. Questions like the condition of the property of all major components, the circumstances for their response to your mailing/call/ad, their level of urgency, loan amounts, what they think the property is worth... based on what data.

The key is to create enough of relationship with the seller so that they will become comfortable with you... because when there is a sense of trust... there is a strong possibility that you will get the deal!

Brian P.

Wholesaler · Salt Lake City, UT · Member since 2009 · 1k+ posts · 401 votes

17y

Jeff

You have received some good answers but I don't like the impression that saying focus on one way and learn one way at a time implies.

When you go to these prospects you go with the idea your going to fix their problem. But going to fix a problem with only one tool in your toolbox is stupid unless it just happens to be the tool you need..

Take a few weeks to gather the superficial knowledge of several methods, you can always tell a seller you want to take a little more time to think of a few solutions that might better solve his problem for him and then make an appoint to present maybe 2 or 3 offers for his consideration..

I am a big fan of Benjamin Franklin's 13 week plan. He would focus on one subject for a week and then the next week he would focus on another. He tended to have 13 subjects so he would be more expert in each of those subjects every 13 weeks, or 4 times a year.

I have 9 main tools in my toolbox and so I have the tool I need for the job almost every time, except for the rare exception when I have to dust off an old tool on the old tool rack and use it.

Jeff Johnson

OP

Real Estate Investor · Young America, MN · Member since 2008 · 18 posts · 1 vote

17y

Excellent advice for everyone. Thank you all.

Sam T.

Elk Grove, CA · Member since 2009 · 27 posts · 0 votes

17y

Originally posted by Peter Giardini:

The first time I had a seller respond to a post card I was a nervous wreck. So nervous that I didn't show to the appointment I made to discuss the deal further.

Good thing I got over that fear...

I learned two things...

1. Every seller has a problem and your job as an investor, as Jeff C. indicated, is to provide solutions. So, always look for ways to solve their problem. Sometimes it can be as straight forward as just purchasing the property from them. The more creative you try to be... the harder it will be for the seller.

2. The person who asks the most questions... wins. And by wins I mean obtains the best possible terms and hopefully these will be your terms.

So... go into every meeting prepared to ask lots of questions. Questions like the condition of the property of all major components, the circumstances for their response to your mailing/call/ad, their level of urgency, loan amounts, what they think the property is worth... based on what data.

The key is to create enough of relationship with the seller so that they will become comfortable with you... because when there is a sense of trust... there is a strong possibility that you will get the deal!

sorry if i'm hijacking. peter, if its not too much trouble can you provide a list of questions to ask sellers for newbies like me reading this thread. +1 for your reply

sam