Today’s REI Classroom Lesson
Coach Collard talks to us today about being ready to adjust your business model as markets shirt.
REI Classroom Summary
When analyzing and watching for changes in the market, you can modify your business model to accommodate for the changing market.
Listen to this REI Classroom Lesson
Real Estate Investing Classroom Show Transcripts:
Mike: Welcome back to the FlipNerd.com REI Classroom where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Coach: Hey everybody. This is Coach Collard again out in Las Vegas. Thanks for having me today. I happen to be the FlipNerd.com REI Classroom host of the day, so excited to be here. As we get in today, I want to start talking about adjusting your models, but specifically staying nimble in a shifted market.
Mike: This show was sponsored by PassiveRental.com.
Coach: Here is a fundamental that I know that you guys are going to experience if you haven’t experienced it before. All markets shift, and it’s really important for you to know that when markets shift, the strategy or the way you are buying real estate and flipping it, or doing what you do, may need to change along with the market. It’s important that you’re ready. So one of the things that I encourage people to do is to create models and systems for their business, specifically models.
So as a rehabber traditionally, I’ve got a 70% model, which means my MAO, my Maximum Allowable Offer, is 70%. So I’m looking for a 30% discount so that I can pay cost and do things. Obviously the fix up comes off the MAO, then I flip the property and I make anywhere from a 15% to a 20.5% ROI. That’s a model that’s safe for me.
Interestingly though, just two years ago after four years ago bottoming in the Las Vegas market, we caught the market speeding up and going about 21% to 30% appreciation on an annual basis. So we had to get more aggressive, because some of the normal offers we were making weren’t getting accepted. So we had to increase our model. We increased it to 80%, but it’s super important that you guys understand this.
We didn’t do it while we were out in the street. We weren’t looking at a property when we were doing it. We didn’t decide to do it based on, “Hey, let’s buy this property and let’s fudge our model.” We did it strategically as a business decision in a business meeting where all our partners came together and said, “Yes, we feel that that’s necessary. Yes, we’re good with it and we understand the risks that go along with it.”
Interestingly, we turned three properties during that six-month period, and then the market softened again. So immediately we scaled back our model back to 70%. It’s super, super, super important. So again, the idea today is staying nimble in a shifted market. You guys need to evaluate your strategies from a place of models and standards, and make sure that they are not too risky based on the market that you’re stepping into.
And when the market shifts, consider adjusting them as well. So guys I’m going to leave it right there. Thanks for having me again today on the FlipNerd.com REI Classroom. We’ll see you again soon.
Mike: PassiveRental.com is your source for turnkey, done-for-you rental properties. If you’d like to be an investor and not a landlord, please visit PassiveRental.com, to learn how to purchase cash flowing, professionally managed rental properties in the hottest rental markets across the country. We can also help connect you with financing for your next property. Invest the easy way today, and get started by visiting PassiveRental.com.
Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.
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