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By: Stephen Cook
So often you hear people say that the most important
aspect of investing is to find good deals and that if
you do this, the money to finance your purchases will
soon follow. Well, to many new investors who haven’t
ever done a deal, this is pretty unnerving and seems
easier said than done. Believing in the “money will
be there” theory and then making offers based on this
belief is like taking a huge leap of faith, particularly
when it would hurt to lose an earnest money deposit
and/or damage your reputation as a “closer” if the deal
shouldn’t close.
For these reasons, I had a tough time making offers
myself when I first got started. Despite what people
told me and however logical it may have sounded, I found
it difficult to believe that the money would be available
if I found a good deal. So I sat on the sidelines for
quite some time, watching others do the deals.
Then one day, I finally decided (actually, I needed)
to give it a shot. I decided to take that leap of faith
and believe that the money would come if I found a deal.
So I started looking at many homes. Well, notice how
I said, “looking.” While this was a step forward, I
still wasn’t making offers. Many of you, I’m sure, can
relate to this, and you are finding out, as I did, that
it’s rather difficult to secure a good deal when you
don’t make any offers. In any event, there was only
one way my lifestyle was going to change from one of
living in a day-to-day rut to one of being free, and
that was that I had to change. So I began (gasp) making
offers on homes, trusting that if I found the right
deal, the money would soon follow.
My First Offer
I don’t remember how many offers I made before my first
acceptance, but I do remember my first offer that was
accepted. It was $36k for a property for which the bank
was asking $45k (just reduced from $65k), and it was
worth about $65k after about $7k in repairs. Now, just
to note, those of you who have read my course and know
the formulas I use are probably thinking that my $36k
offer was a little high. And you’re right. I wouldn’t
offer this amount today. However, at the time, I was
new and to be honest, hadn’t really used any formula
in arriving at my $36k number. It just seemed like a
fair price (I don’t recommend you try this at home).
At any rate, the bank countered my offer at $38k, and
boy was I relieved! I had been scared to death as I
had no idea what I would have done had they accepted.
So I told my agent that I didn’t want to go that high
and figured that was that. Well, my peace of mind didn’t
last long. Soon after rejecting their counteroffer,
I had breakfast with the same friend of mine who had
encouraged me to make the original offer. He basically
shoved me into moving forward with the deal at the threat
of stealing it from me. So I signed a contract for $38k,
and the trusting began.
As it happened, everyone had been right. The money
came right away. Within one week of telling people about
the property, I had an investor willing to pay $40k
cash for it. My friend told me to hold out for more,
assuring me that if I couldn’t find a buyer he would
partner with me and borrow the money for the home. Eventually,
I called a hard money lender the day before settlement
to borrow the money. The lender provided me with $41,000,
enough for purchase and closing costs. He knew the area,
knew that it was a good deal, and knew that he was secure
if he loaned me the $41k. So now, I had money available
from not just one but three different sources: a cash
investor willing to buy, a friend willing to partner,
and a hard money lender willing to lend me the money.
This example is just one case of something I have seen
over and over again during the course of my last 5 years
of investing. If the numbers work, all sorts of avenues
will become available for me to fund my purchase. Just
to give you a more current example, I recently picked
up a home for $105,000 which will be worth more than
$200k after repairs. Since purchasing the property,
I have offered it to others for $125,000 and money is
being thrown at me from all directions?investors who
want to write me checks, builders who want to partner
with me, and students who are begging me to sell the
home to them.
Once again, I have a good deal, and the money is available
from many places. Here are some other examples of money
sources:
- You can get money from partners
- You can sell to other investors
- You can borrow from private lenders
- You can use credit cards
- You can borrow from banks
- You can ask the seller to finance
And the list goes on…
A “Good” Deal
“All right,” you say, “so the money will be there,
but what’s a ‘good’ deal?” Well, I’m glad you asked.
Here are the three characteristics of a good deal:
- Location - This is the most important. The better
the area, the more people will be willing to help
you with the deal. If you are dealing in rough areas,
you will have a rough time getting money.
- Profit Potential - If a deal stands to make a lot
of profit for someone, then it will attract many more
people who see it as a secure investment. The numbers
must “work.”
- Reasonable Price Range - Price needs to be within
the range of the resources available to your buyers/lenders/partners.
If you are trying to flip million-dollar homes, it
is much harder to get the money.
No Deal, No Money
Now, occasionally, I have picked up not so good deals
where the money did not come easily. In fact, sometimes
it’s been really tough, but in the final analysis, none
of these homes were good deals. So don’t be surprised
when you don’t have a good deal and find it difficult
to obtain financing in some form.
The good news it that you can avoid putting yourself
in these situations by making offers with numbers that
work for you. Do this by performing your due diligence,
researching the true after-repaired value of the home,
and estimating the repairs properly. And it’s really
not that difficult to stay out of trouble. Make offers
with your head and don’t let your emotions get the best
of you. NEVER become a “motivated buyer,” and when in
doubt about your numbers, lower your offer. It may not
be accepted, but at least you’ll stay out of harm’s
way and still learn from the process. As time goes by,
you will learn more and more, refine your offers, and
find more of them being accepted.
If you do find yourself stuck with an average deal,
take heart. Assuming your numbers are somewhat realistic,
chances are you’ll still make money renovating it.
Summary
Contracting to purchase a good deal and having other
investors begging for you to sell it to them equates
to an easy, quick, and therefore successful payday.
And in the world of investing, there’s nothing like
a successful payday and the ensuing celebration. So
do your best to find good deals without worrying about
the money. It WILL be there, every single time. This
has been true for me, and it will be true for you, too.
So calm those butterflies and start making offers. It’s
the only way you’ll ever move ahead.
Steve Cook
www.FlippingHomes.com
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About the Author: Steve Cook
Since 1998 Steve Cook has flipped hundreds of
houses as an active Baltimore-area real estate
investor. Steve’s unique specialty is the “flipping
homes 1-2 punch”, a proven system of real estate
investing that powerfully combines wholesaling
and rehabbing
houses. Also the founder of www.FlippingHomes.com,
Steve is dedicated to helping others in this thriving
online community succeed through understanding
and aggressively applying his time-tested, step-by-step
approach to flipping
real estate.
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