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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