Today’s REI Classroom Lesson
As Holly McKhann explains, realtors can be a fantastic asset for you to have so they can bring you deals. By being very clear about what you’re looking for in a deal, they can keep an eye out for deals that would work for a fix and flip.
REI Classroom Summary
Keep your needs simple. Holly tells us the 3 things she’s looking for when a realtor has a potential deal for you.
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.
Holly: Hi there, it’s Holly McKhann, your REI Classroom host for the day. I’m here to share with you some tips on how to train realtors to find deals for you.
Mike: This show is sponsored by passiverental.com.
Holly: I’m a big proponent of networking and finding agents that might want to work with you, but what do you do once you get them kind of interested and intrigued and ready to work with you? Well, rather than just bombard them and throwing at them spreadsheets and calculations and formulas and saying, “I need to buy a house at 65% of ARV, minus repairs,” and throw all the little formulas that you may have learned, it’s better to make it simple for them, not overwhelm them.
So what I’ve done has been effective that I’ve learned, through trial and error, know what not to do. I just tell them when I’m looking for a house to buy to flip . . . now obviously, your parameters would be different if you’re looking for a rental hold, “I need to buy at about 70% to 80% of after repaired value.” Now, obviously, you can switch that up in your market. You might be able to buy it at a lower cost basis, but here in Southern California, it’s really competitive and that’s why I need to be to even be in the running to find a house to flip.
And I walk them through the math because not every realtor is real quick at arithmetic like some of you brilliant investors might be. So I’ll just make a simple example, depending on your market, I’ll say . . . so in California, here Southern California, $500,000 is an easy, quick number to throw out. I’ll say, “So for instance, if a house would resell, fixed up, for $500,000, I would need to pay about 70% of that to make a deal work. For instance, $500,000 times 70% is $350,000.”
And they might instantly be going, “Oh, my gosh, that’s a huge discount.” And it pretty much is so they need to look for neighborhoods where people pay much more for a fixed up, improved house than they would for a unfixed-up house. And there are neighborhoods like that where you see, you can buy an ugly, rundown, problem house for $350,000 but resell it for $500,000 once it’s gorgeous and beautiful.
So after I walk them through that concept of where I need to buy, I tell them I want them to email me three pieces of information. They need to send me the purchase price of the home. If it’s not listed, I can’t look it up online. Or even if it is listed, they might have an inside connection or know that the seller would take less than the list price. So I need to know what price I can buy it at.
Number two, I want them to send me their opinion of after repaired value, and I define that and say that’s what it would be valued at once it’s fixed-up and beautiful. And maybe even show them a sample of what I mean by that. I also want them to send me at least three comps showing me support for that after repaired value.
And then, also, the last thing I ask them to email me is a list of repairs, in general, that are needed. Not every little, nit-picky detail like “Oh, the window in bedroom 3 is cracked and needs to be replaced.” No. Just like, “Oh, it’s for sure going to need a new kitchen,” or, “You can paint the cabinets and put countertops on,” or “It, for sure, needs a new roof.” Just big-picture things.
And I tell them, “Hey, I don’t expect you to know construction costs. That’s my job. Just tell me big-picture, what you think it needs, and that will help me come up with a quick renovation budget and help me know whether or not this deal is even going to work for me.” That way, I don’t spend a lot of time, the realtor doesn’t spend a lot of time if the numbers just aren’t going to work. We just do a quick overall evaluation first.
So in recap, I ask them to email me, and in the subject line, I say, “Please put the purchase price, the after repair value and the address just to give me the super quick overview.” And then in the email, five me one, two, three. Purchase price, ARV with three comps, list of repairs.” I try to make it simple so it’s not overwhelming. I never give them a spreadsheet with formulas. And that’s worked really well. I’ve been really pleased.
Some realtors would get that and they can just respond to me with those items. Other times, they don’t. But that’s okay. Not everyone’s going to be a good fit to work with you and for you, but those that are, this is a great framework to get them trained. And as they progress and you do more business with them, they might be sophisticated enough to grasp completing a spreadsheet for you with more information in it. But start simple and then work up from there.
So in summary, realtors are an excellent resource for you to find deals. I’ve bought over 100 houses through networking with realtors who bring me off-market deals, what’s called pocket listings before they hit the public when they know they’re coming on or someone in their office has them. Realtors are such a good resource for excellent deals to flip or for rentals. I’ve gotten both from them. Take advantage of the realtors. Create win-win situations. Help everyone. Make more money and have a great time doing it. Thank you.
You can get more information on some of my strategies, if you’re interested, at houseflipmasters.com. This is Holly McKhann, your REI Classroom host, signing off, until next time.
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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