You can’t analyze every deal to the 12th degree…
So how do you quickly know if a property is a go or no-go?
Since this question comes up so often, I thought I’d do a very short livestream on it. If you missed it, click this video now and give your attention. It takes less than 15 minutes!
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Before you take down any deal you first need to understand something very important…
With every deal you are going to put in a couple of the following (most likely the first two criteria unless you actually have enough money and/or credit to get a deal done on your very own):
- Knowledge – You may not have the money or credit, but if you have the knowledge in how to acquire properties creatively and work with sellers, buyers and investors, that’s going to tip the scales on your side. Investors who have the money and/or credit will work with you because while they have that side covered they don’t typically know how to do the real estate transactions.
- Time – Putting deals together takes time. The more complicated the deal the more time it’s going to take. If you have the time to put in, you can get others interested in working with you in your transactions. They may have the money and/or credit, but likely they won’t want to be put in time looking for the right properties, negotiating with sellers, rehabbing the property if that’s what you’re into, etc. If you can make cashflow happen using your skills and time, the investors will work with you in your transactions.
- Money – There are more people than you realize in the world… in your very neighborhood who have plenty of cash money to invest. They’re just waiting for you to introduce yourself to them. They have cash in their retirement accounts, cash in their savings accounts, cash in the mattresses, cash that they can take out of existing assets, etc. If you don’t have the cash, but you need cash for your deals, you better get yourself out there and start talking to people. Investors are exactly that… PEOPLE. They aren’t the people you might imagine either… you know, the wealthy ones you have pictured in your mind.
- Credit – While you don’t need a good credit score to be a great real estate entrepreneur who takes down deal after deal, it’s awfully nice to know people who have good credit. These people can be your credit partners. If you can’t, for example, get a fat line of credit at a bank and you know someone who can qualify, wouldn’t it be great to let them know what you’re doing (your goals in real estate) so they might be a funding source? One of my very first buy-and-hold deals included a credit partner. But that’s a story for another day… unless you go back and read some of my earlier blog articles on this site.
The bottom line is that once you have the knowledge and time, you’ll find the people with the money and credit who will want to invest in your deals!
This is something I’ve talked about really, really often in various forms.
Here’s a quick video that you’ll find in our Cash Flow Diary YouTube channel along these lines. But don’t stop there. Give your viewing attention to all the other helpful educational videos on the Cash Flow Diary channel:
Next you have to understand your “Hurdle Rate.”
But what do these two words mean?
Being that the Olympics have drawn to a close, maybe you think I’m talking about those things runners have to jump over to win the race.
Well, sort of… but more along the math hurdle your deals have to pass before it’s a go!
“Hurdle Rate” is an accounting term that will help you determine whether your deal is good or not.It pertains to ANY financing you’re using, including seller financing. (Because one day you’ll have to pay that money back in some way.)
Purchase Price X 1.5% = Gross Monthly Income
So, let’s do the math.
To get that purchase price, you need to add up everything, including rehab costs and your financing. Then you multiply that number by 1.5%. That gives you the income you can expect to earn from that deal each month.
You want to see me work out a deal for you using this formula? Aside from what you find in the above livestream, go here and watch what I do… and this video even gives you negotiation tips:
Now, back to the livestream example…
Using the example I share in the livestream embedded in the top part of this article, let’s say the property’s all-in cost is $100,000 and you multiply that by 1.5%, you get $1,500 per month in income.
So… if you are going to spend $100,000 on the property, you need a plan for that property that will earn you the $1,500 a month.
Key factors in how you’ll get to your projected gross monthly income are rents if residential and other opportunities if commercial. If the numbers don’t add up, stop right there and move to the next property.
Ahhh… but what if you don’t need it to cashflow?
If you’re a wholesaler or fix-n-flipper you aren’t so interested in that end number, because you don’t need the property to cashflow.
You aren’t holding onto it. You want to earn a chunk of change in the form of a fee (if wholesaling) or thousands of dollars in profit (if fixing and flipping).
You’re going to be using different calculations, and the end number is up to you. What do you want to get out of the deal? What do you NEED to get out of the deal?
Get the property under contract and do your thing!
This is something I’ve been educating others to do for a few years now. Go check this video out and see what I mean… It’s about how the real estate investing business model works. Take a look:
This video shows you how as you go through your process you will gain referrals, which only helps to build your business.
If you’re doing the fix-n-flip thing, just make sure that the money you’re putting into the deal multiplies in a healthy way when you flip it so you walk away with the profit you want… or as a wholesaler that you will get your wholesaler fee. (And, no, you don’t need a real estate license to be a wholesaler or fix-n-flipper… or someone who buys, holds and rents out properties.)
The wonderful thing about being a real estate entrepreneur is that there are SO MANY WAYS to earn an income doing it that it might blow you away. And the income can be insane!!
That said, if you really want to go deeper into market analysis, it can only help you. Click into the box below: