In this series we’re learning How to Go From $0 to $10,000 a Month as a Real Estate Investor. This is part 5 of a 10 part series.
Today we’re going to talk about the most important part of the process. Finding and executing your first real estate investment deal. It’s exciting, nerve racking, and will defiantly push you out of your comfort zone. Looking back at my first “flip” deal I recall completely fumbling over the contract when meeting with the investor to sell the property, he must have thought I was and absolute idiot. Just remember to move forward through the fear and the finish line will be right around the corner. In this segment I’ll share where to find your first deal, what to offer on the purchase and how to know if you got a smokin deal or not.
Where to Find Your First Real Etstae Investment Deal
1. Bank Owned Properties
Bank Owned Properties
Here’s what you’ll need before you can find and evaluate deals:
1. A good realtor that can send you listings and write offers
2. An appraiser that can give you an “opinion of value”
So what’s a good deal? Well, it’s a property that you can sell to an investor wholesale and make a $5,000 to $10,000 profit? To know if you’ve got a great deal or not you’ll have to identify what your fix and flip investors “purchase criteria” is.
Example: Your fix and flip investor says their “purchase criteria” is 70% loan to value (LTV). Let’s say the property is worth $200,000 and you know the investor will buy the house at 70% LTV or $140,000. Let’s say you get a bank owned property under contract for $120,000 you’ll be able to flip it to the investor for a $20,000 profit. Not bad!!
Have your realtor pull all bank owned properties that have been on the market for 120 days or more within your city limits. The bank at this point is really ready to get rid of these properties. Pick 15 of the best deals in regards to location and neighborhood then drive the properties to get a feel for the area. If there’s some For Sale signs by other realtors in the neighborhood give them a call and find out as much as you can about the properties, ask them for 1. Price 2. Square footage of the property 3. Days on market 4. Condition. Be sure to make detailed notes on each property.
Look in the windows of each house and see if you can determine the condition, it doesn’t have to be a full inspection but just get a glimps of the inside of the property, we’ll be asking for a 5–10 day inspection period in the contract so don’t worry about not seeing inside at this time.
Eliminate 5 of the properties leaving you the 10 best deals.
Get a meeting with your appraiser friend and bring the selected properties that he can evaluate, ask him to give you a tight range of value and let him know he doesn’t have to give a full appraisal but just an “opinion of value”. The opinion of value will be on the “after renovation value” This is important, also stress the urgency, you want to get this data back ASAP.
Making The Offers
Here’s what you’ll need before you can submit your offers:
2. Several Fix and Flip investors that you can show the properties to.
Once you have the values of each of the 10 properties you’re now able to make offers. The price you want to offer will be determined by the fix and flip investor purchase criteria. In our example above we talked about a $200,000 properly which an investor will purchase for 70% LTV or $140,000. Let’s say the bank has it listed for $158,000 and you know to make any money you have to be at a price less than $140,000. Make the offer to the bank for $120,000 using these terms:
1. $1,000 earnest money deposit
2. 5–10 day inspection period
3. 30 Day close
4. Name your escrow company
Have the realtor write up the offers and submit them to the banks for review, some offers will be rejected and some will be counter and some might be accept (rare). The most likely event will be they’ll counter your price and possibly the escrow company. Counter them back by increasing your price slightly to say $125,000 and have the realtor notate in the offer “best and final”. It’s ok to accept the escrow company counter.
Now, several banks will reject and several will accept. your best and final. Once you have an accepted offer you’ll be asked to open escrow.
Your heart’s pounding; you’ve got your first deal tired up! Wooho! Your real estate agent will ask for the $1,000 EMD check and they’ll open escrow. Call the escrow officer and introduce yourself and ask them to email over a receipt along with the final executed contract for your records. Explain to the agent that you’ll be doing a “double escrow” More than likely the escrow agent will know exactly how to do these types of transactions.
Finding pre-foreclosures will take another 1,500 word article, I’ll save this for another separate post. You’ll have plenty of bank owned properties to choose from I promise.
In the next segment we’ll share How to Sell your Deal for a HUGE Profit. Make sure you subscribe FREE to the RSS feed so you don’t miss an update.
If you have a questions about what we discussed here is this segment, please leave a comment below and I’ll be sure to answer.
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