Episode #41 – What if I Told You One Thing That’s Easily Fixed Kills Your Deals
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Welcome to another episode of EarlToms podcast.
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Today I want to discuss something that hopefully will make a lot a lot of sense to people. It’s one thing that I see as a weakness, I got I think I had six deals, shown to me yesterday. And I rejected all of them. And it’s the reason that I rejected all of them. The The thing that I know a lot, a lot of people do that is not a strength of most people is coming up with a value after repair. And let me explain that why it’s not a strength. Number one, most people are not trained and how to actually value a house. Number two, you honestly have no idea, the kind of renovation, that investor is going to do to the house. So essentially, what you’re doing is you’re just throwing something out there. And saying, if you spend all the money in the world, make this the nicest house in the world, this is going to be the value in what you can sell it for. But that’s not accurate. Because even you wouldn’t do that. And one thing that I do is I there, there’s not been a deal in my life that I have ever sold to someone that I gave them an after repair value, and ARV, unless you specifically asked me for it, you don’t get it. And even when you specifically ask for it, I give you a range, I don’t give you a number. So what I see a lot of people doing is that they’ll sit there like some of these houses that I was saying yesterday, I’ll give you an example.
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There’s there’s an area in my market, that’s part of a what I would call is a section eight rental area. And that’s where I hold the majority of, of the houses. So they send me these, these houses. One of them was in this area, but they tried to put on there that it had a value of $180,000. And I just looked at that, and kind of amazement, because there’s not a single thing in this area that will sell for $180,000. So I kind of wondered where, you know, they got this number from, but I didn’t even question them. I didn’t, you know, none of that. But immediately, when I saw that they were saying that this house was worth $180,000. Immediately, I knew that their asking price was flawed, because they were trying to pump it. And what a lot of people don’t realize is, is when you send it through to my wholesaling website and you’re a wholesaler, I already know you have pushed it to every single investor in my market. And I got the same properties through the actual investment company, not the not the actual marketing company to get the inbound leads. So I had already seen these houses anyway and they were staying the same. As far as the values go there was another area they came in and said ARV is $110,000. And to give you some perspective, and the reason that I that I hold in these areas since 2010. The initial knowing I needed to do renovation, the initial purchase price, with renovations to come. Since 2010. I have not spent more than $10,000 on an initial purchase price in these areas. Didn’t matter if it was light rehab, or heavy rehab, I have not had to spend more than $10,000 only house that needed repair in any of these areas. Didn’t matter if it was on the west side. He saw ignore sub, it didn’t matter $10,000 top worm purchase price in need of repair.
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So if it’s worth $110,000 and it needs $30,000 in repairs, then I would make a lot of money, there wouldn’t be a reason for me to hold and rent these houses out. Because if I could buy these houses on a regular basis, initial purchase price for less than $10,000. And then I would sit there and put $30,000 in it, that gives me a total investment of $40,000. So even by the time I paid closing cost agent commissions, you know, all the all the fun stuff that comes in, and when you float, I would still double my money. So why would I rent a house, when I could double my money within three to six months. What I’ve noticed also is in my market, a lot of people from outside the market out of state, try to come in and virtual wholesale. I don’t know why. It’s confusing. But I’ve rarely met a wholesaler that tries to do it virtually, that has any success whatsoever. They found a client that is buying in that area. They say Hey, I’ll go close some houses in this area too. And to be quite honest with you, I usually hear from these people one time. And after that I don’t hear from them again. I don’t know if it’s because you know, they find that one person that do that because that they need to buy the house. Because really all it takes is one person. I’m not I’m not the buyer for everyone, I’ll never claim to be all you need is that one person to buy it from me, I will grant that to you every single time. But after that first time, I rarely hear from anybody else. And whenever a wholesaler actually calls me, I do my very best to tell them what to expect in this market as far as sales prices, where they went wrong, to be able to not have this deal sold and to be reaching out to wholesalers to try to get to so once you have to reach out to wholesalers, you might as well hang it up if you’re virtually wholesaling and you have to reach out to wholesalers. And that market after you’ve exhausted your buyers, you might as well hang up because you you’re not obviously wasn’t a good enough deal for your regular buyers.
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So when you come in and you try to sell it with another wholesaler that has to add to it to make money. You’re just compounding the problem to be able to try to get it sold. So what I’m what I suggest is to stop putting the ARV in your deals. Whenever you send it out and getting the full description. This is three bedroom, two bath 1,500 square feet. You know it needs light, medium heavy repair, blah blah, let them figure out what what is actually needed on it send them the pictures and send them your your asking price. leave it at that because they’re going to be the ones that make the decision. So no really and truly no matter what you say. is absolutely irrelevant to them. Because I can guarantee you every single one of you listening to this right now has gone out there and said no, you don’t need an HVAC. But every single one of you has had an investor come back and say I’ve got to put a new hva See you in there. So I need to reduce $7,500 to $10,000 from the from the offer price. It’s happened to every single one of you. So that in itself should show you that no matter what you think. The person spending the money to buy it is going to have a different opinion. Because the value part of it is only an opinion. When it stops being an opinion, is the day that the deed is transferred to another buyer and it is sold. Sold is the only fact in real estate. Nothing else in real estate is a fact everything else in real estate is an opinion.
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So what you have to do is match opinions. You have to think just like someone else and that’s how you get your deal sold. That’s why I always tell people tell everyone on the on the podcast to only put houses under contract that Are sellable, because when you’re going out there and you’re putting the $10,000 house under contract and expecting to sell it for $60,000, you have absolutely zero chance of getting that house sold. Zero, I don’t know anyone that actually invest, that is going to pay $50,000 over just to buy that house and then have to spend additional money on top of it, to be able to get it, making it money, whether it’s rented, or they turn around and try to sell it. So when you’re when you’re looking at these properties, especially right now, with the, with the instability in the economy, all of that when you go into markets, or when you’re putting houses under contract, all of this, I’ll give you what you won’t price, you need to throw that out the window, because that no longer exists. It’s it’s you’re you’re you’re in a race to the bottom right now regardless of what anybody in the in Washington DC or anybody on Wall Street wants to wants to talk about. If you look at the stock market in the last few weeks, it’s already lost 1,500 points. So and you’ve had major swings on them, to where they’re dropping over 500 points in a single day on multiple days. So you’re not, you’re in a race to the bottom. The only reason that is still up is actual corporate greed and government greed, things of that nature, because they they everybody’s addicted to money, including myself. But there is an ethical way to get the money.
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So what you need to do when you’re going out and you’re putting these houses under contract is realize, yes, you are helping someone. But you’re not actually out there to put these houses under contract for more than you can actually sell them for. Because you’re not going to do any good in that scenario. You’re not going to get it sold, you’re going to waste your time, hurt your reputation. And at the end of the day, you’re going to have to call that that homeowner and say, Hey, then work out. So now you didn’t keep you weren’t. You told him you were a cash buyer, you had cash money. And there’s no problem with the title. So what did you did you lock Did you not have the cash money, what happened? calling people back and saying, you know, bad condition. Every one of your website say I bind as is condition. It’s just as one of those things that we really need to work on that side of the industry, to get a more ethical standard. To be able to do these things, people need to be able to understand the value portion of it a little bit better. To be able to put these houses on the contract to get them sold. Because if it’s not sellable, no sense whatsoever and putting it under contract, you’re wasting your time, you’re going to add stress to your life cut off, you know, minutes, days, years of your life, just stressing yourself out. So let’s do some things.
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To figure out what you should be putting houses under contract for if you go out, and whenever you look for your for your comps, what it’s worth, whatever you do, whatever you do, do not pick an orange and compare it to an apple, because that’s not going to help you. And what I mean by that is let’s say that you’re going out when really matter where it’s at, but your house needs repairs. It is not market ready today. And we all know the society that we live in is a is an Instagram got to be perfect. As soon as I get this house, I’m going to take a picture snapping on Instagram. Let everybody tell me how great and wonderful that looks. If your house is not at that point, do not use a comp that is a finished product. Your house is not a finished product. So it’s going to do you no good to use that comp. You’re trying to back out from a finished product. When yours is, let’s say half finished. So you’ve got a very wide margin between half finished and completely finished. To where you can mess up getting your offer very wrong. I would rather start at a half finished house. Comparing it to my half finished house because it’s a it’s got a less room margin of error. We’re starting At the same place, instead of me trying to two plus three plus seven, equals 12. When I’m starting with a half finished house, and I’m comparing it to a half finished house, I have a two plus two equals four. So a lot easier starting with something that is similar to you. And when I say starting with something similar to you, sure you start with the condition, you’re looking, you’ve got a two bedroom. no sense whatsoever. And looking at a three bedroom as a car, because it’s not, it will never fly as a car. No investor, no appraiser, no one that has got to look at that house is going to think a three bedroom is a car. If it is a two bedroom, the difference is, is you can use it as support if there is enough square footage, and the floor plan would allow you to add a bedroom. But then you factor in the cost to add that bedroom to see if it makes sense on a value standpoint, to add that bedroom, because if it cost you $15,000 to add $10,000 in value, it’s not worth it. If it cost you 7500 to add $10,000 worth of value, still not worth it, you have to make sure adding that bedroom is value was worth it. Because cost does not always equal value. So when you’re looking at these at these comps, if there is a if there is a way that makes that makes sense to add the third bedroom, and the value is there to add the third bedroom bath bedroom with the cost. Put those comps in. But let them be comp four, five and six, not comp One, two and three. Because again, that investor might choose not to do it. So as is today it is a two bedroom. The value add becomes whether or not that investor thinks it’s feasible to add that third bedroom.
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You never sell it own potential. That that that will kill the majority of your deals. You’re selling it based on physical realities. That’s why I say when you’ve got a two bedroom, you do not put a three bedroom as a comp and you surely don’t put a four bedroom as a comp. You do apples and apples, similar condition, similar bedroom, similar bathrooms. If you’re sitting there, and you’ve got a one story, why are you putting a Tim story as a comp, unless it’s the only thing that’s out there. And then you have to do adjustments and figure out what kind of style and design sells for the most money because some people don’t want to walk upstairs. you limit your market is at the same price. One of the easiest ways in the world to figure out if you’re at the right starting point is to go in and look at the price per foot. Because it’s like when the guy finally called after I told him I wasn’t interested he he tried to call and I guess talk me into it. And I basically just explained to him, I said look, every house that you have sent me is over $100 per foot on value. That’s not even remotely doable in those areas. If you’ve got 1,000 square foot house, that isn’t that’s not $100,000 house in that area. That’s more of a $50,000 house fully occupied paying rent, ready to go. No repairs needed. So when you’re looking at these houses in my market 20 to $25 a foot when it needs repairs is the max per foot. Because when it’s finished, if it’s 1000 square foot, it’s only going to be worth $50,000. So if I go in and I put if I buy for $20,000 1000 square foot house $20 a square foot, it’s $20,000 if I go in and put $20,000 worth of renovation in it. Now I’m in that house at $40,000 with a value of $50,000. So essentially I’m in that house at 80% 50 times two is 40 times two is 80%. That’s just the way that means just math.
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So when you’re trying to tell me, a house is worth $100,000 it’s just not not doable. And he said, Well, this is what the realtor said, I said, Look, my realtor only cares how much they can get it sold for, they’re gonna tell you anything in the world, because the more they sell it for the more money they make. Same with wholesalers. If you want to get it sold, yeah, especially being a wholesaler and being an agent, you have to hit it at the right price. Because the only reason a house does not sell is price. No other reason whatsoever that a house does not sell its price. You could have the best house Becka condition, best finished product, only entire block. But if your price is too high, your house is not selling. If your price is too low, it’s selling immediately. You can have a house that needs repairs, if it’s priced too high, not gonna sell this price too low, it’s gonna sell immediately. That’s supply and demand. That’s how it works as principle of substitution. So when you’re going in and you’re putting ARV’s in properties, you’re basically killing your deal, before you even get it started. You get the house under contract for the right price, and it sells itself. You don’t have to do anything behind it. I’ve told you all this before. Some of my clients whenever I send the deal in I just put on there, here’s your description. And then under it, I didn’t I didn’t even put an asking price. And I just put in the show me the money. And they know it, they know whatever they come back and offer I can sell it to them for that’s my that’s my way of saying hey, this is the one I’m going to make money on. Many times I sell it to you for you know a discounted price, and I’m not making the money on it. This is the scratch your back deal. Except a scratch in my back this time.
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So when they come back, and they say why can give you this price, guess what? I just made $25,000 you can have it. I’ve had houses before, where I’ve actually had investors come back offering offering price, go look at it, come back with a different price that was $20,000. And they say I can give you this for I have and I go back to and I say you know what, can’t do it. I’m not gonna sit there on $100,000 house and make $50,000 on this deal. That that’s just not good ethics, I’m not gonna do that to you. And when I do stuff like that, I can sit there and type in, Show me the money. And I don’t get cut to the bone with my, with my offers from them. Because they know I’ve extended that exact same courtesy to them in the past. And if those are not the people that you’re working with, you need to find new buyers. Because I’ve said it before as well. The people that want to know how much you’re making are not long term, clients. They’re not there for the relationship, they’re there for the control to be to feel important. They have low self esteem. And it’s always gonna be drama with them, you might get to deal with too well. But they’re gonna be the ones who complain nitpick and just stress you out. So make sure when you’re out looking at these houses, and when you’re putting this package together, send out to your to your buyers. Do it in an ethical way. Do it in a way that you can get the deal sold. And most importantly do it in an ethical way to where you can actually keep your word to these homeowners. Whether it be an actual homeowner that lives in the house or an investor because a lot of times and you know this, you’re only out there when somebody is in trouble. So why are you adding the stress to that person’s life making all kinds of promises and fail to deliver on any of them. You’re not doing yourself justice by basically lying to these people. Because you’re going out there saying you won’t $40,000 sure I’ll give you $40,000 because I think I’ll be able to turn around and sell it for $60,000 and then in 14 or 21 days ever how long your your inspection period is on your contract. You have to call back and say, came by? And then you have that, what don’t you remember for cash as is? How do you explain that? You can’t, except to make up another law, you can’t truth your way out of that. And that’s all it’s about, there’s to be able to go in and tell the truth and keep your word. Make sure you’re going out there, and you’re actually looking at the right comps to get the right number to offer them so that you turn in a sellable deal. If it’s not sellable, it’s irrelevant. If it’s sellable, it’s bankable, and you don’t have any stress with a bankable deal, because the second you get back and send that out, you relax, because you know what sold you There’s nothing pay, so I’m good. Oh, you have to worry about it. And then when you get to the point where you can actually bomb yourself, you send them out, because you know what you’re all making $20,000 to $30,000 on a house doing very little work on. But if it doesn’t sell, then you go in and buy because you know it’s still a good deal. That’s where I want everyone to get to, is the ability to actually get deal sold, just giving physical information without actually putting themselves in a corner that they can’t get out of.
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Because it’s, you know, for me just an analogy, I’ll go play sports. I mean, granted, I’m older now. So things hurt a little bit more in the morning when I get up after I played. But whenever I play sports, I’m not the worst one there. Sometimes I’m the average one, sometimes I’m the best one there. But I grew up as an athlete, I’ve got a very athletic family as the, the lineage that I come from, we all went to college and play ball, just different sports. But I’m not gonna sit there and go stand in front of an audience and sing, because I’m just not a good singer. So my weakness is singing a strength is being able to play sports. So I’m gonna do what I’m good at. I might practice what I’m bad at. But I’m not going to just go stand on the stage and sing. And essentially, when you throw out all of these ARV’s, you’re standing on a stage singing. And you’re going to be booed off the stage more times than not. If you can sing, go sing on the stage, that’s your strength. But the analogy is, do what you’re good at, you’re gonna get more deals. So don’t do what you’re not good at, because it will cost you deals. And it will hurt your reputation. Because now the people that send me these deals and show me $110,000 or $180,000 ARV on a $50,000 house, I’m not really gonna take them that serious, because I already know they have no idea what they’re doing. now know that that may come as a shock to a lot of people but practice your strengths when you’re doing this, look at things especially the the comps and and compare it to things that are similar. Don’t sit there and pull out the best in the area and say that’s a comp because it’s just not you’re defrauding yourself. You can’t sit there and tell an investor that’s done this and spend their own money that a $50,000 houses $180,000 house and expect it to get sold. That’s just not ever going to happen. Unless you meet, I don’t know the stupidest person in the world. I mean, there are a lot of people in the world that have money that are just not very smart. So maybe you find them but odds are you’re not going to find them. So don’t send out $50,000 houses and say they’re worth $180,000.
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That’s just my advice.
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I hope you’ve enjoyed this episode, learned a little bit.
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Essentially that’s that’s what this is about. You know, we’re not doing this to get paid or do any coaching or anything like that. We’re just we’re doing this just to try to help because if it helps the industry, it’s going to wind up helping us as well too. So maybe one day we’ll get paid on the back end, because we won’t have to work as hard and wholesalers will send us deals that we can close immediately.
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Like I said, hope you’ve enjoyed the episode, learn learn something. If you want to any more information on things that will help you you can go over to the website it’s EarlToms.com.
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With that we’re gonna draw to a close.
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Thanks for listening
