Remember those lengthy algebra problems in high school where you had to find the value for the expression
- 2+x=18 what is x
If you got the correct number that was a answer you got right on the assignment or test, each answer adds or takes away from the total score or grade. Now I could put this one on bigger pockets where all the investors where and wanna be investors go for sound advice in real estate. But this is about the basics of getting into real estate from any practice and making it.
But real estate makes sense when looked at it from this, because this is what it has become over the years. Each deal is different and has missing components, real estate today takes a creative mind or a law abiding entrepreneur. Law abiding by, "there is a system it works, this is the way I will reach my quota". Creative being more of a rebel, the person who can levitate or the magician who is buried alive or under water and ice. Defying all logic and "rules" changing the game and being a innovator. There are deals today where you can get residential for free, commercial for free, and land for cheaper than it should be. But this comes by the means of creativity and being good at it, like the kids who never get caught, except if you break any laws you will get caught. So then by knowing what can and cannot happen, what to say (agree to) and not to say (agree to). These are the nature of a solid investor, broker, owner, and entrepreneur in real estate. No matter what presented with you must overcome and accomplish, and endure till the death of the problem. I have seen people trade their houses for a car, some for a car as a down payment, people trade their houses for apartment buildings. Everything is property and there is no special degree that you need to make it because it's not about a job, its about making the next sale. But there are a special set of skills you need and the just of it is algebra. Identifying the problem and the desired outcome to determine the missing input. The only thing is that this is a bunch of trick questions, and there are equations which cannot be solved. Watch out for the tire kickers, scammers, and dreamers.
A bad case would be those people who expect you to stay on the phone for 30 minutes when you have to make 100 phone calls before lunch. These people have STDs DO NOT get into bed with them, make no agreements or commitments to people who cannot contribute to your cause to check the next thing off your to-do list.
1.) Identify the problem and the desired outcome to ind the input
There will be all types of stories and situations when dealing with buyers and sellers and middle men, there is always something new and fresh about selling real estate. Once you seen it all, its time to go to a new market and maintain the last.
The foundation might be bad, you might have a buyer for a bad foundation and specializes in this, but most buyers wont touch it with a 10 foot pole. These are different "x's" that do not need you to be creative you should know who is going to buy the house the moment you wholesale it or list it. You just let everyone know your selling it so they can see you are selling, the world is your stage. Which leads me to the last part of making it work in real estate.
2.) Finish the assignment ( skip it and come back to it if you can)
You will need to do more than just meet the needs of your clients ( the equations), but meet the needs of what a good deal means to you ( the bonus questions). Because if you want to make at least 5K on each deal you haft to be flexible in seeing that you reach that quota. One deal you can charge the 5k to the buyer, or seller, for a referral fee or finders fee. One deal you might not charge any commission and just mark the price up on the property. One deal you might have a contract to purchase and sell it for 5k to another buyer before expiration. Or worst case scenario you can always buy it and fix it up and make a profit of 5k that way. All of these would make up your "PEMDAS" if you were taught in school the way to do algebra after it gets hard enough they are supposed to tell you about this.
You need to have your own order of operations and pick out which way will you be making money on this assignment. Or ask yourself "I know I can make money on this deal, but which way do I want to make the money?" Like you were picking out your car or suit for the day. Then find which ways to solve the problems there in, in fact real estate is full of acronyms and IS algebra in another light, except for before the missing value of x is on paper you go out and get it. You have things like your
*MAO (Maximum Allowed (allowable) Offer) - which is used for wholesaling houses without a license, you take the cost to you plus the repairs, and do not forget your mark up. So: Cost + All repairs and cosmetics+ 5k= what you can sell it for (The offer you give the seller is the asking price minus any repairs (your fee).
- A house is in need of 8k worth of work and owner is asking 16k buyer wants to go 25k all in on this neigborhood. So that's 24k all in and that leaves you a fee of 1k. You mao would be 12k.
- You get this in writing and have some type of sales agreement or contingency or assignment to purchase. Or my personal favorite the affidavit.
- But if the amount you can sell it for is higher than a fair asking price (FMV- fair market value) or what your buyers are willing to pay you must negotiate to get the x. The x is what balances the equation and makes it a good deal for everyone, everyone might loose or gain but it will be collateral damage either way. The buyer might need to offer more or the seller less and so before calling either one, you need to know who is being unfair and who has the most to loose. Or else you will be that person that calls and the phone call never goes beyond a conversation. You offer what ever you haft to, keep your fee on the table. But if its a numbers game then, you will know how many calls come back and many follow ups turn into transactions. Whats bad for one is perfect for another, meet the needs of the client. But clients are the repeat business from the constant outsourcing to prospective regions.
All in price which is the main concern of the next owner of that property, if you ever watched one of those shows something unexpected almost always comes up. What am I really buying because even in commercial committing to properties is like marriage you get a contract and you get whatever you got; good, bad, or ugly. Make sure you fully disclose what it is they are getting into because that is what they are buying, regardless what the title company and papers says you all were apart of. Instead of a house with a bad foundation the buyer is buying everything that comes with a bad foundation to complete the equation of what makes a home.
CAP ( capitalization rate) which is a good tool for your buyers who like to buy and hold. inside every metropolitan are are a bunch of markets where each region can be identified by a spread of industry standers cap rates. For example zip code 12345 cap rates should be 5-10% for my buyer to pull the trigger. So then if the cap rate is at a 3% and the person who is selling it to me sells property in another area where 3% is good, the deal is absolute trash to me and my buyer regardless of all the other factors. The cap rate is found by the income for the year (NOI- net operating income) divided by the total investment or asking price.
- My uncle's house grosses 80k a year and he wants to sell the house for 500k, find the expression for x ( the cap rate, because some people buy solely off of the cap especially out of state buyers find this important)
- This would be expressed as 80k/500k=0.16 or 16% which is pretty healthy for this market. So then I write my uncle a offer of 450k since I'm his favorite nephew and he knows nothing about selling a home I make this a breeze for him and he makes more money than if he went a agent or bank with the loss. That's a big spread, I know, I used that to impress upon your mind that, that is the name of the game. Outside of repeat business you want big chunks over crumbs, boulders of gold not nuggets, commas not coins.
This is only to raise your level of awareness and lend to your intentions by which you set in going out into the daily grind of real estate. You must be efficient and produce results, but your GPS or road map ultimately decides your fate above all else. Thank you for putting up with all my rants and post, this is real estate under the hood, my philosophy from seeing people say things like there's a app for everything and then another group making apps for everything. One group saying that interest rates are too high and another group saying you think we can get a little more? The sheep and the Sheppard the hunter and the hunted, there is a lot of that activity in this industry do not believe everything you see and hear.