How to Calculate After Repair Value Based on the Cost Per Square Foot of Comparables

When calculating the after repair value or ARV of a property, we always suggest using comparables or comps. from a real estate agent.  Let’s go through the math of how to use these comparables to get the best ARV possible.  As a quick review, remember the best comps have 3 important factors: They are close to your subject property, they have sold recently, and they are similar to your subject property. 

When you get comps from your agent, you will need 2 numbers for each comp you receive: the amount that the property sold for and the number of square feet in the property.  Once you receive this information, you will want to calculate the cost per square foot for each comp you have.  You get the cost per square foot by taking the amount the property sold for and dividing it by the square feet in the property (for example a property of 1000 square feet sold for $100,000, so take $100,000 / 1000 = $100).  In this example the cost per square foot is $100.  You will need to perform this calculation for each comp you have. 

Now that you have the cost per square foot for each comparable property you received, you will need to evaluate those numbers.  If you have 6 or more comps, you can take the high cost per square foot and the low cost per square foot and throw them out.  With 5 or less you will use all of them.  This will help dial in your ARV a little better.   

Once you have the cost per square foot on all the comps you are going to use, you will need to get an average cost per square foot.  To do that, take the cost per square foot on all the comps you are using, add them up, and divide by the number of comps used. (example: You have 4 comps with a price per square foot of 103, 98, 90,108. 103+98+90+108=399, 399 / 4 = 99.75).  $99.75 is your average cost per square foot. 

The last calculation you need to do is take the average cost per square foot and multiply it by the number of square feet in your subject property.  Let’s say are subject property is 1100 square feet, so take 99.75 * 1100 = $109,725.  $109,725 is the ARV.

This is a great way to calculate your ARV, because it is based on what similar properties in the neighborhood are selling at right now.   

Successfully Working with Realtors

Since over 80% of real estate is sold through realtors, it is important to learn how to work successfully with realtors.

First, let’s look at what an agent can do for us:

  1. Promptly provide complete and accurate comps.
  2. Literally unlock the door to potential deals so we can see the property at our convenience.
  3. Submit all our offers immediately as requested with our amount and our terms.
  4. Promote our low offers to the seller and other agents, improving our chance of acceptance.
  5. Help us get the seller to finance the deals.

Realtors can help you find properties using the MLS (multiple listing service).  Not only can realtors help you find properties to make offers on, they can also help you obtain information on similar or comparable sales, also known as comps, using the MLS.  Comparable sales can give you an idea of what investment houses will sell for.  Realtors provide the most up to date and accurate comparable sales.  These comparable sales are one of the most important items to know when calculating offers.

Anyone serious about wholesaling or rehabbing properties needs to look at properties that are vacant and in need of work/repairs. Realtors can help you here. Realtors are the only legitimate way to see listed properties that meet the criteria of needing work and being vacant. Here is where a realtor can help promote your low offers to the seller and dramatically increase your chance of getting your offer accepted. Your offer is much stronger if you include as an addendum captioned pictures up close and ugly showing what is wrong with the property. This can make an amazing difference in getting your offers accepted.

While it may seem that all realtors will be happy to work with you, such is often not the case. Eighty Percent (80%) of new agents are out of business within the first year.  Worse, some realtors don’t even want to submit offers or give the third degree about your credit worthiness. They do this because they fear doing a lot of work and not getting a sale. You need to train them to work with you your way. Does it make sense to invest in learning how to buy at wholesale and then let a realtor teach you how to buy at retail and they make a big commission while you lose money?

A new investor will often come across to the agent community with what is referred to as “rookie-breath.” The agents think the newbie investor doesn’t know what he or she is doing and will attempt to get rid of them. This is a sign to them that they must do a lot of work with no commission money in return. Further, they see your low offers as an embarrassment in front of the seller who was expecting them to get them “all the money.” Hence, they refuse to submit those offers, don’t return your phone calls, or insist you do things that are difficult, costly or even impossible, such as making a huge deposit and proving you have cash ready to complete the transaction.

Finding good agents, and training them is the first, best, and easiest way to become successful in investing, especially wholesaling. The good news is that even if they don’t want to submit your low offers, they have a fiduciary responsibility to do so. It is not their job to decide the acceptability of offers. They are merely there to submit the offer presented to them and let the seller decide.

You can remind them of their responsibility. You can present the problem to their broker or/and the local real estate association. Do this and see how quickly they decide to submit your offer.

Don’t let realtors get away with submitting your offer verbally over the phone.  Remember that verbal offers will never work. Your offer must be submitted in writing to have a chance. Further, you will want to resubmit your offers ever two weeks or so. As high as 75% of the investment deals that are done are either on resubmitted offers or offers submitted as a back-up to a deal that is under contract. Hence, you will want your agent to resubmit your offers.

Finding agents who are also investors can be a great strategy. They see and understand what you are doing. They may even be willing to partner with you on deals. Hence, they will be quick to recognize the value of getting seller financing. Typical Realtors see seller financing as negatively delaying their commission collection.

To find investing realtors just ask receptionists if they have any realtors that are also investors. Then ask to visit with them. Not only are you more likely to get your offers submitted, these realtors can often show you where the bones are buried. Just a little selectivity and training of realtors can dramatically increase your success in real estate investing.

Make More Money by Finding Off the Radar Deals

Off the radar deals are properties that are not listed with an agent. They have the potential to be more profitable because there is less competition. Obviously, being able to notice these quickly is critical because if it is a good deal it will go quickly.

The ability to find deals is critical, and it is equally important to find either buyers or investors for your deals. Hence, you will want to work on both areas all the time. In many cases, you can earn a year’s pay on a single deal!

Here are the six areas of focus to find Off the Radar Deals:

  1. Out of the Box Deals (Off Market)
    1. Probate/Estate
      1. Nursing homes (make certain your sellers are not senile!)
      2. Obituaries
      3. Funeral Parlors
    2. Preforeclosure: You can buy property with a built-in mortgage by getting a quit-claim deed. A properly drawn up Power of Attorney for your “mortgage assumption” can open the communication door with the mortgage company for the duration of the mortgage. A good attorney can help you put your property in a Land Trust where you become a beneficiary and executor. Good marketing will find buyers who love the fact that their down payment is their credit approval.
    3. Vacant Observation: You will want to learn how to spot vacant properties and then find the owners through software like “Real Estate Pro.” You can find cell phone numbers and even email addresses, in many cases, using websites like www.Intellius.com for $20.00 a month or less.
    4. “Don’t Wanters”
  2. Investor Clubs – Learn how to use and exploit these clubs.
    1. People with Money: Everyone you know either has money or knows someone who does. “Ask, seek and knock!”
    2. Hidden Deals: Watch how quickly inside secrets are shared as you smile and greet others.
    3. Rehabbers & Contractors: These people go to the meeting and could be your inside track to future success.
    4. Buyers: People who are looking for deals you can easily find will be there.
  3. Landlords – Key to the Mother-Load.
    1. Find Signs: Take pictures of “For Rent Signs.” Call them. Some will be looking for more deals, and some will have deals to sell you.
    2. RE Pro Software: Ask your sales person to cut you a deal.
    3. Lists Anywhere: Start looking for lists. Just about everything is in a list somewhere.
  4. Serious Marketing – What It Is and Why It Wins.
    1. Yellow Signs: More testimonies of success with “Yellow Signs” than anything else.
    2. One-on-One Visits. Go and see the people who can help you. Remember, people like to do business with people they like. Become a friend.
    3. Free Marketing: Learn to use emails, text messages, Facebook, Craigs List, YouTube, Smart Phones etc.
  5. Reticular Awareness – Develop a sense of what a good deal looks like. Learn how to smell the money.
  6. After They Say NO! – Master the art of offer resubmission. Change nothing! Resubmit offers every two weeks. Between two out of three and three out of four offers we initially rejected!  Ask to be a backup offer on deals under contract. Sixty percent (60%) of deals under contract fall through. Your chance of getting a good deal is much better once a deal falls apart.  Always do a thorough “dead deal autopsy.” Find out what the winner of the deal is doing with the property and who they are using to help them. How did they beat you?

Tips for Saving for a Down Payment for a Mortgage

Buying a home is typically the largest single purchase a person will make in his or her lifetime. When you are preparing to make a big purchase in real estate, it is important to understand the complexities of what you can afford, what everything will cost, and how to prepare for your purchase.

Before you start looking at homes, your first step is deciding what you can afford and what you want from a home. List your basic requirements such as location, size, and other features.

Then, you will need to save for a down payment for your home.

Different mortgage programs require different amounts for a down payment. If you qualify for a FHA home loan, you can purchase a house with 3.5% down. In addition, many other mortgage programs allow a down payment as low as 5% of the purchase price of the home.

If you are financially able to put 20% down, it can be beneficial. Lenders will not require you to purchase Private Mortgage Insurance (PMI). PMI is an additional cost built into your mortgage that protects the lender in the event of a default.

Here are some tips to help you save for your down payment:

  • Pay yourself first. Make saving a priority by setting aside a certain amount each month.
  • Consider having money automatically transferred in your savings account each month. If you never see the money, you are less likely to miss it.
  • Cut back on your Spending. Choose one item to give up or cut back on and put that money in the bank. This item could be a drink, which is a small expense that tends to add up quickly.
  • If you have the option, consider working overtime and add that money to your savings.
  • Get a second job or do freelance work to earn more money.
  • Sell stuff on eBay. eBay is the ideal place to offload your unwanted household items in return for money. You can convert your clutter into cash.
  • Eliminate the luxuries. For example, put your cable television subscription on hold.  Take your lunch to work every single day. Don’t go shopping for new cloths.

Over a period of twelve months, you could easily save a few thousand dollars. 

Three Questions to Ask Yourself Before You Start Investing

As you start investing in real estate, ask yourself these three questions:

First:

What are your real estate goals? Outlining what you want your investments to accomplish will help guide you in the right direction. When you first start, it is like planning a vacation or cross-country trip. Discuss with your spouse or partner the core reason you are investing. Is it for retirement, for your children or grandkids and/or for supplementary income? Different strategies are needed for different reasons. Some yield returns more quickly (such as wholesaling), while others are for longer-term investments (such as buy-and-hold rental properties).

Second:

What is your time commitment? How much time are you dedicating to your efforts? Is this more of a hobby or do you want it to replace your day job? You need to be honest in your assessment of timing and what you are willing to give-up or reschedule. There are limitations to your weekly obligations.

If you are already busy with a full-time job, school or the kids, then you should asses your schedule carefully. Experts and seasoned real estate investors say beginners should realistically evaluate how much time they will be able to carve out of an already full schedule.

Third:

What is your focus? Where do you want to start investing? If you need money in the short-term, then you should focus on wholesaling. If you have the time and the expertise (or the network), then you might undertake buying a fix and flip. If you want residual income, then a buy-and-hold property would be a good strategy for you.

Assessing where you are financially will also help you decide where to start. Wholesaling takes little to no money down, while doing a fix-and-flip or buy-and hold will take a significant amount of cash. Some investors do not understand that many lending institutions will only lend a portion of the funds for a purchase and will not lend additional money for repairs.

Summary:

Assessing your goals, time-commitment and financial focus will help you be more strategic in your efforts to be a successful real estate investor. Additionally, being clear on your objectives will help you focus your efforts and avoid wasting time.

Suggestions for First Time Flippers

Buying real estate properties for a bargain, fixing them up and then reselling them for a profit is a great way to make money as a real estate investor. This is often referred to as “house flipping” or doing a fix-and-flip.  You look for a home, buy it cheap, fix the home up, then sell it for more than what it costs you to buy and fix it up.  You can make a huge profit. There are a few ways to improve the experience or ensure you do not lose money.

Plenty of real estate savvy investors are making money with fix-and-flips, but while it looks and sounds easy to do, house flipping has some risks involved. If there are more repairs than estimated, the flipped property does not sell immediately and/or you encounter other unexpected issues, one might not break-even.

Here are several suggestions to help you be successful:

  • Get a Mentor:

Successful “flippers” educate themselves and know the ins-and-outs of the real estate market. If you are just getting started, one of the ways you can get off on a good foot is by finding a successful house flipper to mentor you. The things these seasoned investors have experienced or learned along the way are invaluable. Offer a percentage of your profit for advice if you need to. Then do your research on properties in your local area and find a house you want to make an offer on. 

  • Save Money On Materials

Buy the materials to fix up your house yourself.  Contractors do supply materials but they will mark up prices. If you buy the materials yourself, you will save money and only pay for labor. 

Because costs for materials vary, it’s best to get to know your local stores. Some stores who offer discounts to contractors will give you the same deal if they know you are an investor and plan to do more than one house. Don’t be afraid to ask for a discount.

Home Depot, Lowe’s and Costco offers great deals. Also watch for any clearance sales on materials. You can also go to second-hand stores to find great deals at a lesser price than buying new materials.

  • Save Money on Labor

Some investors buy a house during off-season. This way they can complete the job on time since contractors have less of a workload on their hands and can focus more on the job you have for them. Contractors are sometimes cheaper in the off-seasons.

Hire reputable sub-contractors instead of a contractor and run the job yourself. This will save you money because a contractor also marks up the price of the sub-contractor they hire. 

Doing some of the work yourself will also cut labor cost.

  • Save Money and Time by Using a Realtor

Once the home is fixed-up and you’re ready to sell the house (vs. keeping it as a buy-and-hold property), studies show if you use a reputable real estate agent, your property will sell quicker than selling without one. The longer you hold on to the property, the more holding cost you incur. Realtors know plenty of possible buyers and having them list your house on the MLS helps sell your property faster. While they are selling your house, you can spend your time looking for your next deal.

Overall, utilizing a few basics will help you in the process of doing a fix-and-flip. All it takes to be successful is having the right attitude and information. And getting out there and doing it.

Knowledge + Action = Results

4 Steps to Overcome Analysis Paralysis

Most beginning investors will deal with analysis paralysis or overthinking a situation so that action is never taken.  A couple of the biggest causes behind analysis paralysis are lack of confidence and fear of failure.  Beginning investors feel like they do not know enough to take action.   Here are some steps that can help one overcome analysis paralysis.

  1. Remember your goals and what you would like to accomplish with real estate.  Write you goals down somewhere you can look at them on a regular basis.  If you have not set goals, you need to.  Having goals in front of you will help give you the motivation to take action.
  2. No one is going to do it for you.  This is your business so don’t count on someone coming to help.  You need to take action because if you don’t, things won’t happen. 
  3. Find your fuel.  This is a key in getting moving.  This is also different for everyone.  Why do you want to invest in real estate?  What will investing in real estate help you achieve?  Lite that fire within you, start taking action, and never look back. 
  4. Are you willing to do what must be done?  Investing in real estate is not easy.  It takes perseverance.  You will be told no over and over again.  The investors that are successful figure out how to get through whatever obstacle is put in front of them.  They are willing to do what must be done to be successful. 

Taking action with investing is the most important thing we do.  Of course we need knowledge but if knowledge never turns into action we will never make money.  It is important to understand that we will not be perfect as we get started investing and we will make mistakes, but it is all part of the learning process.  As we continually take action, we will make money investing in real estate.   

Three Common Obstacles for New Investors

The career of a real estate investor is riddled with obstacles. The very job of an investor is to find and fix problems and overcome obstacles. However, there are difficulties that can blindside new investors and stop them before they even start. This article will illustrate three common obstacles investors will face upon entering the business.

  1. First and foremost, new investors will be hit with the realization that real estate investing is not a get rich quick program. This job can be equated to running a marathon rather than a sprint. Although a person can make sizable sums of money rather quickly, a person will not get rich overnight. In order to make it long term, a person must be persistent and consistent. There must be discipline to complete the necessary tasks to be successful. Therefore, the first obstacle is to overcome the idea that you will be able to retire with little effort.
  2. The second obstacle is gathering the right people for your power team. A successful investor will need other industry professionals to help with their business. The right person for your power team is someone that will support you in what you are trying to accomplish. We need to surround ourselves with like-minded individuals and limit our interaction with negative people. There are many industry professionals that have a limiting mindset and will only serve to bring you down; therefore, these connections should be avoided at all costs. Work to bring positive and supportive people onto your power team.
  3. When a new investor jumps into the game they are usually anxious to gobble up all the information they can get. There are countless “experts” in the field that have a special way of making the business work. You can jump from video to video and article to article outlining all the “best” ways to make money in the real estate industry. This information overload should be avoided at all costs. A new investor should find one strategy and focus on it until they are comfortable enough to move forward without new information throwing them off track. It is easy to hear so much information that it places you in a state of inaction. Beware of this trap.

All new investors will encounter obstacles that are unknown until they pop up. All new investors should prepare themselves to overcome the three difficulties outlined in this article. Remember, stay focused and be consistent to meet with success.

6 Ways to Use Facebook to Build Your Real Estate Business

You have probably noticed plenty of advertisements for various products and services on your Facebook page every time you log in to your account, and you may have even clicked on some of these ads to learn more about it.  Initially, you had no plans of buying, but because of the time you spend on Facebook and the frequency of these ads passing your page, you somehow found yourself convinced and planning to purchase. 

The use of social media such as Facebook as a means to platform your real estate business will prove to be one of the best moves you ever make.  According to a recent study, Facebook is the most used social networking media among real estate professionals and other businesses because literally almost everybody has it, and you can easily spread the word about your business through ads, conversations, or by creating a business page.

By harnessing the power of Facebook, I have found these tips helpful to building my real estate business.

  1. Be Visible

First things first, setup a Facebook page for your business.  Make your presence known by sending invites to “LIKE” your page to your contacts and clients.  Ask family and friends to share or recommend your business page.  Having your presence known makes it easier for prospects and clients to connect with you, increasing customer retention and loyalty.

  1. Post Stunning Photos with Detailed Captions

Make sure that the pictures of real estate homes or properties you are posting are appealing enough to make it to sell.  People love beautiful things and there is nothing better to capture your prospective clients’ attention than beautiful pictures of the properties you are selling.  As an added bonus, people may even share them, making more people see what you are selling.

Don’t forget to post pictures of your buyers with their new home.  People love real life stories with happy outcomes!

  1. Share Interesting but Valuable Information Related to Real Estate

Give practical advice like how to increase the value of a real estate property through DIY projects or share links about interesting real estate topics.  Encourage people to interact with you by asking real estate trivia questions or by answering their questions about the real estate business.  Not only does this make your business page active and interesting to your followers, answering their queries will create connections with possible loyal clients in the future.  Fans and likers may even recommend you to people in need of your services if they like you.  It really pays to be helpful.

  1. Building Relationships with Your Fans and Likers

As I mentioned earlier, having conversations with your fans and likers creates a connection between you two and, in the long run, builds relationships.  Like any other relationship, trust and dependability are very important, especially in business.  In the real estate world you are not just selling houses, you are also selling yourself.  There are plenty of studies that show that people are more likely to talk and do business with you if you are warm, trustworthy and dependable.

  1. Post Regularly

Now that you have made your presence known in the Facebook community, being able to maintain a consistent presence may be a challenge when you are struggling with your busy schedule.  It is wise to always remember to incorporate it with your daily routine until it becomes second nature.  Other realtors make a big mistake by not continuing to stay active after setting up their business page, not realizing that Facebook is an interactive media platform.  By posting regularly, you are letting people know that you are still in business, and it keeps their interest in your page active.

  1. Connect Your Facebook Page with Other Social Media

After successfully launching your business page on Facebook, don’t sit back and stay content.  Facebook allows you to connect with other forms of social media, so take advantage of it by letting your followers know where they can find you.