I Might Have A New Deal….Now What?
By JD Esajian on May 5, 2017
It is not enough to get your phone to ring, you need to be able to turn the lead into an actual deal. You never know when you will be presented with a new deal opportunity. However, and whenever, they come your way you need to be ready to act. What you do in the first few minutes of an initial conversation can completely change your prospects. A seller doesn’t care if you are in the middle of three different tasks or if you are having a bad day. They want to know if you can help resolve a problem or get them out of a bad situation. As soon as your phone rings you are on the clock and everything you say and do matters. Here is a five-step plan for what to do as soon as a prospective new deal comes your way.
- Find Motivation. You should know exactly where you stand after you are done with the initial conversation. By discovering the seller’s motivation, you will have a pretty good idea of what steps to take next. Depending on how the lead comes your way finding motivation from some sellers is easier than others. During the first conversation, you need to know why they are thinking about selling, if there is a loan balance, if there any other liens on title and how quickly they want to act. You don’t need to rattle off each question one by one but you should end up with the answers. You also need to get as much contact information as possible. Having an email address or a cell phone number gives you additional contact options if you need to communicate. Knowing why they want to sell gives you a starting point for a purchase price.
- Property Due Diligence. Having a motivated seller is a good start but not enough to move forward with a deal. Once you know the seller wants to sell and will not be difficult to work with you can move on to the property. At the end of the initial call you should set up a time when you can see the house. In the time until you view the interior there is due diligence to be done on your end. Start by asking your real estate agent to pull up any past listings. The comment section will tell you if there were any repairs done and anything else that can help in your decision. You should also take a minute to find out the exact amount of property taxes and see if there were any dramatic increases in recent years. Finally, you need to put eyeballs on the interior. Never get lazy and trust what you see online just to rush out an offer. Walk the interior and exterior to gauge how much work may be needed or what improvements you have to make. There should be nothing about the property that you don’t know before moving forward.
- Exit Strategies. As you consider whether or not to make an offer you need to think about your exit strategies. It is not enough to get a property at a discount. If you can’t make a profit with the property it may be more trouble than it is worth. In most cases, you have three main options: wholesale, buy and hold and fix and flip. If you can get the property at a deep enough discount you may be able to wholesale it for a profit without spending any time on it. If the rental market is strong cash flowing the property for a few years is a viable option. You also need to explore the option of a fix and flip rehab. This requires more capital but can also yield a much higher return. Your exit strategy will directly impact your offer price and if you need to start assembling a team to hit the ground running as soon as you take ownership.
- Run Numbers. Whatever your top exit strategy is you need to know that the numbers work. If you want to wholesale you need to find the sweet spot that an end investor will find attractive that still works for you and the seller. If you want to rent you need to look at the local rental market and see how your property stacks up. You also need to run the numbers for the cost of improvements and all the various housing expenses. The process is similar with fix and flip rehabs. You need to look at comparable listings and current sales to see if the numbers work as well as evaluate the repair costs. It is important to look at the numbers with an unbiased eye and not let your feelings for the property influence your decision. The numbers alone should influence your next step.
- Make Offer. Only when you have all the information necessary should you make an offer. Your offer should reflect your value of the property and not what the seller may think. As long as you can justify your offer you should stand by your number. The seller may initially scoff at a lowball offer but in time they may see things your way. If the seller counters at a number that is out of your comfort zone you need to walk away. The goal is to make a profit and not simply close a deal. This is not always easy to do but is important for a healthy portfolio.
Real estate investing is a numbers game. With more opportunity the more deals you can close. When presented with a new deal you need to be ready to act as quickly as possible. Use these five steps to help guide you through the process.