Today’s REI Classroom Lesson
In the classroom today, Alex Pardo talks to us about expecting more. This concept makes sense for calculating potential profits from deals and how you should try to always raise your expectations.
REI Classroom Summary
Set a goal for yourself (that is pushing the limit) so that you aren’t leaving cash on the table!
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.
Alex: Hey, guys. It’s Alex Pardo here from flipempire.com. And I’m happy to be hosting another REI classroom where I’m going to be talking about you need to expect more and you get what you expect, and not only in business but also in life.
Mike: This show was sponsored by passiverental.com.
Alex: Okay. So what do I mean when I say you get what you expect? It sounds very obvious, but how is this applicable not only to our personal lives but specifically for your business? You’re probably spending some time here because you want to grow your business, you want to make more money. And we actually closed a deal a couple of months ago where we made just over $50,000 on the deal.
Now, not all of our deals are $50,000 plus. That’s actually been one of our better deals this year. But the reason we were able to make almost double what we typically make on a wholesale deal is because one of the things that I challenged my team with at the beginning of this year is how can we increase our average profit per transaction?
Okay. So one of the things you guys need to stay on top of is your KPIs, your key performance indicators. And I may have spoken about that on a previous REI classroom, but one of those KPIs is what’s your average profit per transaction? So in your market, when you wholesale a deal, what do you typically make on that property? Is it $3000? Is it $7000? Is it $30,000? You need to know what that is because that’s going to dictate how much marketing you send out based on how much money you want to make and how many deals you want to do.
So last year, our average profit per transaction was about $12,600 here in the South Florida market. And I just didn’t feel it was good enough so I challenged my team. I said, “How can we not only do more deals so that we can scale and grow but, more importantly, the quality of the deal? How can we make more per transaction?”
So we set a goal at the beginning of the year, $20,000, we don’t want to do a deal unless it’s $20,000. Now, that’s not to say we’ve done several deals this year where we’ve made $11,000, where we’ve made $8000, where we’ve made $15,000. But we always want to push that way so that when we market our deals and when we negotiate with sellers, we always want to make sure that at the bare minimum we have a margin of $20,000.
So a couple of months ago, we picked up a deal. It’s a lady that inherited a property, her mother had passed away, it didn’t have to go through probate, she contacted us. What’s funny is that we sent out a blind campaign. And what I mean by a blind campaign is that the postcard doesn’t mention anything about us wanting to buy their property. It just says, “Hey, we’re contacting you about this property. Please give us a call,” but it doesn’t mention that we’re investors, it doesn’t mention that we buy properties cash.
Well, this lady was at her mother’s house, she was cleaning up the house. Again, her mother had passed away, and she found our card on the kitchen table. So she contacted us, she spoke to our lead manager. Our leader manager is trained that whenever there is motivation, forget about price, just set up an appointment for the acquisitions manager to go meet with the seller. So we did that and the lady tells us a story, how she thought it was weird that her mom had a card on the kitchen counter and there wasn’t much other mail around there, it was just the card. So apparently, the lady saved it.
She contacted us and basically the property was worth about $185,000. We contracted it for 80,000. And when we were going to market the property, I remember specifically having a conversation with our sales manager and we were thinking of pricing the property at about $109,900. So we were going to make about $30,000 in the deal. And I said, “You want to know what? This is a pretty good area. It’s in one of our hot zip codes.” And I want to encourage you, watch the previous REI classroom where I talk about how to identify your hot zip codes.
And I said, “There are a lot of landlords buying in this area because it’s a pretty good buy and hold area.” I said, “Why don’t we swing for the fences here? So rather than looking at this as the after repaired value is $185,000 so we need to price it at $100,00, $110,000, maybe $115,000 to leave some meat on the bone.” I said, “Why don’t we target our landlord buyers? Let’s swing for the fences and let’s price this property at $134,900.”
So just by challenging ourselves, we increased our margin an extra $25,000 and within a week, we actually went under contract with a buyer who paid $131,000, $132,000. So we made about $52,000 on the deal. And we would have left $20,000, $21,000 on the table if we wouldn’t have pushed ourselves to not only meet our goals but exceed it.
So just bringing this full circle, to put a bow on this REI classroom, you get what you expect. So if you expect to make more on your deals, you’re going to make more. And I want to encourage you that if you’re picking up properties in good areas, and if they’re in your hot zip codes and you have buyers there, don’t be afraid to push the envelope with the pricing. Now, granted, you don’t want to develop a reputation as somebody who’s not putting out good deals. But if you’re picking up quality properties, especially if you’re marketing them to landlords who are going to evaluate the deal more on a buy and hold, don’t be afraid to push the envelope on the price.
You deserve to make more on these deals, you’re building a business, you’re marketing, you’re spending your time and effort on your money. So I challenge you, what’s your average profit per transaction? Are you making $10,000 a deal? Are you making $20,000 a deal? How can you push that? How can you make an extra $5000 or $10,000 on every deal?
And I think back to the beginning of this year, if I wouldn’t have challenged my team, we probably would have left $150,000, $160,000, $170,000 on the table. That’s the estimate about how much more we’ve made just by really pushing the envelope. So I hope you’ve gotten a lot of value from this REI classroom and I look forward to catching you on the next one.
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.
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