Cash Buyers

What Makes A Real Estate Market a Sellers Market Versus Buyers Market?

I am going to go through and help you identify the difference between a Sellers Market versus a Buyers Market.  A real estate agent will help you with metrics to differentiate between each type of market.  Please keep in mind, not all real estate agents are created equal, but if they are actively doing real estate in that region, they should know the current state of the local real estate market.  They will get this information per quarter from the local board of Realtors.  A real estate agent pays to have access to the MLS, which gives them access to all of these metrics real time.  So, let’s go get into the details of what determines a Sellers Market versus Buyers Market.

  • Sellers Market – If the Days on Market (DOM) is less than 90 days, the active inventory on the MLS is less than 6 months, and more than 3% appreciation in that area, you have a Sellers Market.  I want to define the term inventory for you.  The inventory metric represents the amount of active properties listed on the MLS versus the number of buyers buying up this inventory at any given snap shot of time.  Just think of it this way, when there is an increase in demand, supply will drop and prices will increase.  It is all just another example of supply and demand.
  • Buyers Market –   If the Days on Market (DOM) is more than 90 days, the active inventory on the MLS is more than 6 months, and less than 3% appreciation in that area, you have a Buyers Market.  I want to define the term inventory for you.  The inventory metric represents the amount of active properties listed on the MLS versus the number of buyers buying up this inventory at any given snap shot of time.  Just think of it this way, when there is a decrease in demand, supply will increase and prices will decrease.  It is all just another example of supply and demand.

Now, I want to take this a step further and define the types of properties that a Rehabber would need to look for, in order for their aggressive offer to get accepted in each type of real estate market.  In a Sellers Market, a Rehabber will want to focus on Distressed Sellers & Distressed Properties.  If a Rehabber wants to get their ( Example: 70% ARV – repairs) offer accepted in a fast moving market, they need to focus on sellers who need to sell quickly and properties that have condition issues that will hinder this property from qualifying for FHA or VA financing.  Whereas in a Buyers Market, A Rehabber will want to focus on Distressed Sellers OR Distressed Properties.  Did you notice the difference between the two?  In a competitive real estate market (Sellers Market), you need to be that much more exact and focused on the right properties, in the right market, and offer the right offer.

December 31, 2016 / by / in , , ,
Why is Wholesaling Not Working for Me? What am I Doing Wrong? – Part 1

You are not alone.  Does that make you feel any better?  Probably not!  So, why are you having such a hard time wholesaling deals?  What are you doing wrong?  I wish it was a simple answer or a magical wand that I could wave to help you.  However, I will go through a few key reasons why you are probably reducing your chances of having success wholesaling real estate over a few blog posts.

One of the biggest mistakes that I run across most often, is that new wholesalers do not know which properties to go after in different types of real estate cycles.  What do I mean by real estate cycles? Basically, is it a sellers, buyers, or in between buyer and sellers market?  I will define each below and the types of deals you NEED to look for as a wholesaler and even new Rehabbers in any area within the country.

  • Sellers Market
    • Less than 90 DOM, less than 6 months of inventory, and more than 3% appreciation
  • Buyers Market
    • More than 90 DOM, more than 6 months of inventory, and 3% or less appreciation
  • Buyers/Sellers Market
    • Whenever the metrics are between these or not all of the metrics have shifted to one side of the spectrum

These metrics are based on the reports most real estate agents will receive each quarter from their local Board of Realtors.  It is the way that most real estate agents know whether it is a buyers, sellers or in between real estate cycle.

So that is all fine and dandy, but how does this apply or impact me being successful wholesaling?  Well, you will want to focus on different scenarios in different cycles.  I will outline those below.

  • Sellers Market
    • You MUST focus on distressed sellers AND distressed properties in this market to even get your offers considered and to keep your number of offers down.  You will have an easier time getting a seller to say yes to your aggressive offer, if they have a need to sell now and their property doesn’t qualify for FHA or VA financing.  Why?  Well, if you look at that, you just narrowed down the potential buyers to a smaller number.  Also, you will not be competing with full price/retail offers on this property.  You can’t compete with that.  You could be making 50-100 offers to get 1 accepted.  I don’t know about you, but I want to make the least offers to get an offer accepted that meets my criteria.  I am not about wasting time.
  • Buyers Market
    • You should focus on distressed sellers OR distressed properties in this market to get your offers considered and keep your number of offers down.  If the market is slower than the seller needs to sell by, your aggressive offer could be considered even if the property is move in ready.  It is often a time thing.  However, if they have a property that does not qualify for FHA or VA financing, the seller has a fewer buyer options.  They are stuck selling to a cash buyer or offering their own financing.  In most cases, they just want to be done with the property.

So, if you are making the wrong offers, on the wrong property in the wrong real estate cycle, you will be getting a lot of rejection and not as many offers being accepted.  Yes, it could cause you to not be seeing the success you want with your real estate wholesaling business.  Your cash buyers (that are rehabbers) might be telling you that the margin is too slim, or there is not enough profit in the deal.  What I just mentioned above, is one of the reasons why that might be the case.  Stay tuned for the next part in this blog series.  I will help you learn some of the other reasons why you might not be seeing the success you hope for in your wholesale real estate business or your new rehabbing real estate business.

October 15, 2016 / by / in ,
Calculate Wholesale Offers on Income Properties that Landlords will Love.

Do you have some cash buyers who are looking for rental properties to add to their portfolio?  If so, that is great, but do you know how to run numbers that will not make you look like a fool?  If you run numbers like you would for a Rehabber, you  are going to miss the mark and possibly lose that cash buyer.  You must speak “cash flow” to the Landlord.  Meaning, you must show them the cash flow is in the deal you structured and the deal actually meets their investment criteria.

Now, how do you do that?  Keep in mind, you want a Landlord to keep coming back to you for repeat purchases.  The better your structure the deal and the easier it is for them to do a cash out refi, the sooner they will come back to you for their next deal.  Talk about credibility and repeat business….huh!!!!?

I have outlined the 4 steps to go through to calculate the offer.  You will want to show them the details of the deal.

Cash Flow Analysis Calculator

October 14, 2016 / 1 Comment / by / in , ,
Best Way to Capture Your Cash Buyers Attention When Selling Your Wholesale RENTAL Properties

I have seen many different ways that wholesalers offer their wholesale RENTAL property information to their cash buyers.  Some of these offerings have been less then effective in their ability to capture a cash buyers attention and truly convey the numbers that make the deal work.  The fact is that if you do not give your cash buyers enough information about the property, you will simply not get anyone biting on your wholesale RENTAL properties.  If you are struggling with getting your cash buyers to pull the trigger or even show any interest on your wholesale properties.  Cash buyers want to limit the amount of time they spend doing due diligence and how much credibility they see in your ability to evaluate and find great wholesale RENTAL properties.  You must include some key ingredients of the wholesale deal to your cash buyers.  Here is an example of the crucial ingredients to include in your emails, youtube posts, website posts, etc to cash buyers who are going to RENT the property:

  • Property Location ( General area = not un der contract) (Address = under contract)
  • Property Characteristics (Property type, beds, baths, sq ft, amenities, etc)
  • Gross Monthly Rents
  • Total Monthly Operating Expenses (Property Management, Maintenance, Taxes, Insurance, Vacancy Rate, HOA, Utilities, etc)
  • Repair Cost Estimate
  • Summary of Types of Repairs Needed to Rent for Top Dollar
  • Under Contract Price or Price to Buy Property Wholesale
  • Cap Rate
  • Listing of the RENTAL Comps Used to Arrive the Gross Monthly Rents
  • Your Fee
  • Your Contact Information
  • Youtube Video Link
  • Online Photo Album Link

If you provide this level and amount of information they will be more readily able to see the potential of the wholesale deal and be that much more confident in pursuing it with you and paying your fee for the deal.

July 11, 2016 / by / in , ,
Are You Considering Investing In Real Estate Remotely? You Need to Have These People On Your Power Team

Are you considering investing in real estate remotely?  If you are, you should have the following people on your power team:

  • Local Real Estate Agents
  • Local Real Estate Wholesalers
  • Local Bird Dogs
  • Local Contractors
  • Local Real Estate Attorney’s
  • List of Local Cash Buyers
  • Local Property Managers
  • Local Title Companies
  • Local Hard Money Lenders
  • Local Small Banks

You can obtain referrals from local Real Estate Investnent Clubs & Landlord Associations.  I usually reach out to the meeting or club organizer and the board members asking for referrals.  Then, I will usually start locating local investor friendly real estate agents using the techniques I have mentioned in this blog as well as in my book “Surefire Techniques to Find Investor Friendly Agents” .  They will normally have a few referrals for you too.  Next, I will build up my local Cash Buyers List using the techniques I have already taught in quite a few places on this blog.  I will ask them for referrals too.  Usually, I will have quite a few referrals that I can then screen and start working with right away. 

 

August 27, 2015 / 1 Comment / by / in , , , ,
Cash Buyers: Are You Buying Income Generating Properties? Learn Which Expenses Most Sellers Don’t Disclose

As I travel throughout the country, I realize how many cash buyers are buying income generating properties without ALL of the numbers being disclosed.  I think this is very unfortunate and saddens me that others in the industry think it is okay to sell a newer cash buyer on fictitious numbers.  So, I have decided to write this post to help clear up which numbers you really need to see before you go and buy an income generating property.   These are the bare minimum numbers that should be disclosed and the respective return that the property returns with ALL of those expenses accounted for in the P & L (Profit & Loss).

  • Gross Rents is the starting point.  You will subtract all of the holding costs associated with the property from this number.  The Gross Rents should include anything that you are collecting monthly for that property.  It should not include inconsistent late fees.  It should include rent each month, yet it might also include monthly storage fees, or monthly pet fees too.
  • (-) Property Management is an expense that should be subtracted from the Gross Rents.  It is the cost associated with the monthly management of the property.  Even if you are planning on managing the property yourself, you should still include this expense.  When you go to sell the property, your buyer will want to see that you have accounted for a property management fee each month.  I usually recommend that you pull at least 10% of Gross Rents to cover this expense.  Ten percent is a pretty common amount charged.
  • (-) Maintenance should always be pulled for any income generating property.  Even if the property is brand new or recently remodeled, you will still incur some maintenance costs.  When someone moves out, you will be grateful for this slush fund too.  Typically, I will account for 5% of Gross Rents, if the property is new or recently remodeled.  Whereas, I will pull 10% of Gross Rents for rentals that might need some updating.   If you have a savvy tax preparer, they might recommend capital improvements at certain times too.  Therefore, it would be in your best interest to have a slush fund available to fund these upgrades, instead of it coming out of your pocket.
  • (-) Taxes should be pulled out as an expense too.  You want to make sure the property still makes sense as an income generating property with this amount pulled out.  There are some areas where the taxes are so high that they really do not cash flow very well.
  • (-) Insurance is another critical expense to ensure is accounted for on your income generating property.   You will want to ensure that you have the appropriate and adequate insurance coverage for each of your income generating properties.  In some areas, you will need flood insurance, where others need earthquake insurance, in addition to a standard landlords policy.  You might even decide to include liability insurance too.  The increase of premiums will impact your cash flow.  FEMA has been changing the requirements and boundaries for certain types of coverage, which might impact how much you will to allot for your income generating property.
  • (-) Miscellaneous fees are those fees that may or may not apply to certain income generating properties.  I will include HOA fees (Home Owners Association) or PUD fees (Planned Unit Development), Utilities, and a Vacancy Factor Fee as I see that it applies to the respective income property I am buying.  HOA fees or PUD fees will apply in some areas where as not in others.  You should look into where the property is located in an area where these fees apply and  how much they are per year.  It is a cost that is required to be paid on that property.  In order to rent out some of our properties, we have to include utilities in the rent amount.  If this is the case, you need to account for those costs.  In some cases, your multi unit may not be sub metered, thus you have to pay for utilities initially and then back bill your tenants.  You need to account for this cost, incase you can not collect the money from your tenants.  You should always account for a vacancy factor.  Even if the property is supposedly always 100% occupied, you might have a vacancy at some point and that will cost you money to market it, to show it, and to repair it.  It is always nicer that the property is able to pay for that expense instead of it coming out of your pocket.

The result of all of the above listed expenses pulled from the Gross Rents will provide the NOI (Net Operating Income).  It is in your best interest to require that any seller show you all of these numbers, so you can make an educated decision on the income generating property.   If they just give you numbers with gross rents and the NOI doesn’t match yours, you know that they have not accounted for all of the expenses that you will incur with that property and they are trying to make it look like it performs at a higher return than it actually is performing at right now.  Do adequate due diligence before you by, so you ensure you are not taking on someone elses nightmare.

January 26, 2015 / 2 Comments / by / in , ,
2 Different Types of Real Estate Agents: Cash Buyers Should Choose the Right One

Over the last 13 years, I have found that a lot of real estate investors settle for a Real Estate Agent that is okay.  Many of these real estate investors do not understand the different types of Real Estate Agents available in residential real estate.  Here are a few categories of real estate agent that you will find in any residential real estate market:

  1. Retail –  The majority of the real estate agents in any real estate market are these.  They focus on helping owner occupants find homes that meet their needs as consumers and they plan on living in for a few years.  They will usually work with people who are buying based on emotion.  Consumers will pay retail or market value for a move in ready home.  Real estate agents who work with these clients are use to making full price offers on properties with little to no repairs needed and qualify for traditional financing.
  2. Investor – The smallest group of real estate agents are investor friendly real estate agents.  They focus on working with a select few real estate investors, who are buying properties on a regular basis with them.  They like the steady income and the consistency of having a few select investors that have the same investment criteria month after month.  They appreciate that their cash buyers are paying cash and can close quickly on each property.  In cases where they are working with Rehabbers, they are re selling the same house just rehabbed to retail buyers.  So they are essentially making two commissions within a very short period of time on the same property.  If they are working with Landlords, they are helping them buy a property and then they might help them manage the property for many years after the purchase and then help them resell the same rental property.  As you can see, it is a good way for these agents to have a more consistent income.

You need to ask any real estate agent you are considering working with if they work with real estate investors.  If they state they do, you will want to follow that up with whether they work with Rehabbers or Landlords.  Why is this a necessary question to ask?  Well, it is crucial to make sure that your investment approach and criteria is matched with the right real estate agent.

If they work with Rehabbers, they are use to making aggressive offers considerably below the current market value.  Additionally, they are use to going after properties that need considerable amounts of repairs and have definite condition issues.  Also, they are use to making many offers at a time to get one accepted.  They will know the fast moving areas and the areas where the best profit spreads are and where retail buyers are looking to live.

If they work with Landlords, they are use to making offers closer to market value and they are use to minimal repairs needed on these properties.  They know where the best rents are and the expenses associated with holding onto a property.  They can answer questions about Section 8 and other questions associated with holding onto a property for a few years.  They usually do property management themselves or they have a business associate who is offering that service.

As you can see, if you are looking for properties to flip, you need a real estate agent who works with Rehabbers, so you have someone who is on board with your approach to business and making offers.  Likewise, if you are buying and holding properties, you will need a real estate agent who specialize in rental properties.  They will be willing to make the offers that meet your criteria and who can provide the information you need to make effective offers on future rental properties to add to your portfolio.  You do not want a bunch of resistance to your investment approach, thus you need to match your approach up with the best investor friendly real estate agent.

January 20, 2015 / by / in , , ,
3 Main Categories Of Cash Buyer You Will Find in Any Real Estate Market: Where is the Money in Today’s Market?

Not all cash buyers are created equal.  Yes, they all buy real estate in some form or another, but that is about as similar as each of these types get in any real estate market.  They evaluate properties in a variety of different ways and they look for different returns.  Some cash buyers are very creative, while others are implementing a more traditional approach to profiting from real estate.  Let’s get started by identifying the 3 main categories of cash buyer of residential real estate.

  • Rehabbers
  • Cash Flow Investors
  • Landlords

In many markets, you will find that Rehabbers are having a harder time finding properties that have a large enough spread for them to buy, rehab, and resell.  It is occurring due to the lack of inventory available in many real estate markets throughout the USA.   Most rehabbers are still trying to buy at 70% or 75% of ARV minus repairs.  If they are targeting properties on the MLS, they are hard pressed to find large quantities of those deals in a lot of real estate markets.  They will usually try to flip these properties within 3 to 6 months.

Cash Flow Investors are finding it a bit easier to find properties that meet their criteria than Rehabbers.  The reason why Cash Flow Investors are finding it easier to make a profit, because they are selling their properties in a future real estate market.  If they do a lease option, they are setting the option to purchase for one to three years out, which is in a different real estate market.  If real estate values continue to appreciate then they can sell that property for a nice profit in the near future.  If they do seller financing, they are selling the property in todays market, but the borrower will need to refinance the property in 5 years or so, due to a balloon coming due.  Thus, the borrower will need to refinance the property in a future real estate market and for an appreciated price.  As you can see, they could buy today for one price, but they will sell at a future value for a nice profit spread.  The Rehabber buys and sells in the same market, so they don’t have the same type of spread.

Landlords buy properties based on the net cash flow the property produces rather than just  current sold comparables.  If rental properties are cash flowing well in the area and expenses are generally low, you will find that Landlords will being paying market value or higher than market value for their rental properties.  Landlord buy based off of cash flow and certain returns per year.  Typically, the Landlord is not going to sell the rental property for 5 to 30 years from now.  Thus, they will be selling in a different market too.

Hopefully, you can see the opportunities in what I just wrote above.  The cash buyers who are selling in future real estate markets are the ones who should be the main targets and the main people making up your cash buyers list in todays market.  They are the ones that will be buying higher and leave enough room in the deal for a wholesaler to still make a profit.

January 19, 2015 / 3 Comments / by / in , , , ,
Have You Ever Heard This From A Cash Buyer, ” If The Numbers Make Sense, I’m Interested”
Retirement Account Cash Buyers

Cash Buyers

Most real estate wholesalers will receive the following reply from a cash buyer at least once in their career ” if the numbers make sense, I am interested”.  In fact , Moore times than not cash buyers will offer this reply to a real estate wholesaler to get them off the phone quickly or simply to receive first dibs whammy properties the real estate wholesaler comes across.  The reality is that any cash buyer does have very specific investment criteria that they use to determine if a deal does make sense to stem or not.  Real estate wholesalers should gather the following information from their cash buyers:

  • Where they want to invest? -zip codes, cities, school districts, portions of the city, or even subdivisions
  • What they want to buy? – property type, beds, baths, parking, type of structure, house style, etc.
  • How much are they willing to spend? – aka price range they like to buy in typically
  • How many deals a month are they interested in buying? – if they buy 3 or more houses a month they are pretty heavy hitters and serious cash buyers
  • Which repairs are they not willing to do?
  • How much net profit do they need to see per deal? – it could be a dollar amount, a percent return, cents on the dollar, or even percent of ARV
  • What their exit strategy is? – do they fix and sell, rent, or lease option or seller finance their properties

These are the core questions to get any cash buyer to answer, so you can find, negotiate and pass on deals that make sense for the cash buyer.  Otherwise, you will be wasting a lot of time and effort looking at properties that do not meet the cash buyers criteria.  If this occurs, they will not buy and you will not make any money.  Get the information you need and look for those deals.  It is just another successful business model to apply to real estate investing.

August 9, 2013 / 6 Comments / by / in ,
Even Cash Buyers Should Maintain A Cash Buyers List
Cash Buyers Dream

Cash Buyers Dream

Many seasoned real estate investors also known as cash buyers forget to keep up their cash buyers list.  What do I mean?  Any business at any time will be receiving leads from their marketing that do not fit their business model.  What do they do with this excess?  They should refer it to other businesses that have a different business focus and make some money from those referrals.  It keeps them networking in the business with like minded business associates and it helps out customers get their needs met.  It is a win-win-win.  So, if you are a seasoned real estate investor, it would be in your best interest to always maintain a list of fellow cash buyers who have a different (business model) set of investment criteria than you.  You will be able to recoup more of your marketing dollars than you would if you did not and you get the opportunity to make money from real estate leads that you normally would not have seen any money from.

It is a great way to receive additional real estate leads too, because your colleagues in the industry cannot take down every real estate deal they come across nor would they.  Your fellow colleagues are cash buyers too who have very specific investment criteria that they stick to as well.

One last thought on cash buyers maintaining their own cash buyers list, if you are a landlord for example and you become cash strapped, how will you continue making money in real estate while you are resolving your cash issue?  Most cash buyers, who are landlords, will have to sit on the sideline while they wait for that refinance or to acquire more cash options.  Why do that when you can have a cash buyers list that you continue to pass properties onto and make money that can help you cash flow problem and strengthen your place in the local real estate market as someone who is the go to person for buying a selling of great properties.

by maintaining your own cash buyers list, you are building a successful business model by which to continue to build and grow a very successful real estate investing career.  It has worked for many other industries as a successful business model, why can’t it work for you in the real estate industry.

August 7, 2013 / by / in ,