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Unknown
When you start trying to talk yourself into making decisions that don't align with where the market is selling at, you're betting against yourself.
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Unknown
Welcome back to the Seven Figure Flipping Podcast. I'm your host, Adam Whitney. I've done over a thousand deals and hundreds of millions of dollars in real estate. We're actively doing deals today, and I have my partner with me today, Lindsey Arco. Hey there. Really excited about today's episode. We're going to talk about the deal decision framework that makes you faster.
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Unknown
Here's who this episode is for. If you're somebody who is struggling to analyze deals, you don't feel like you're doing it fast enough. It's taking you forever, or you feel like you just don't have a concrete understanding of the numbers and you're scared to take action. This episode is for you. Also, if you are buying deals right now just to buy deals and your underwriting is loose and you're taking on projects that are losing your company money.
00:01:04:14 - 00:01:27:06
Unknown
We're going to talk about why you shouldn't do that and how you should analyze deals better. Yeah, because most investors don't lose money because they can't find the deals. It's that they either don't make an offer at all because they're uncertain in their number, or they make an offer without having all the facts and data, and then they lose money on the back end.
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Unknown
Yeah. And I'll one of the prime misses for why people are losing money has a lot to do with making assumptions. And one of the things we talk about in the military a lot is, in order to build an operational plan, you have to make some assumptions to finish a plan. Here's what people don't understand is every assumption you make that you can't validate and go get the truth, like turn it into a fact that is assumed risk.
00:01:52:17 - 00:02:19:03
Unknown
That's a risk you are making a decision to carry into your deal. If you can't say deal or no deal pretty fast, you don't have a deal problem. You actually have a decision problem. And making assumptions will cost you tons of money. Making assumptions is expensive, although caution without framework is just fear. So many investors just don't move forward and actually make the offer out of fear.
00:02:19:05 - 00:02:39:13
Unknown
And I'll tell you, the thing about this is it's not just about assumptions or fear. It's also about speed in real estate. One of the principle is time kills deals. But money loves speed. So the faster and the more sharp you get at your ability to analyze a deal, the more money you're going to end up making in your business.
00:02:39:15 - 00:03:08:06
Unknown
So what you really need at the end of the day is a lot of reps, because the more reps you have, the more experience that you get. The more confidence you have, the more offers you can make. Okay, so let's get into talking about deal analysis. You're looking at these deals. You're confused. You're uncertain about these deals. And the problem is, is you take too long, you don't get the deal or you even worse, you get the deal and there's no margin left.
00:03:08:08 - 00:03:29:23
Unknown
So what would you tell people? What do you need to know first before you start making offers? Well, I think first off you need a framework. You need a model. You need to be able to understand how to quickly analyze deals. And, there's a secret I'll lead with. The secret is you need to get repetitions in this skill set, right?
00:03:30:01 - 00:03:51:04
Unknown
Right. Reps are really important because you become more confident the more reps that you have, and the more times you improve your accuracy, then you feel good about the offers that you're making. One thing I see investors not doing in the very beginning is actually having a clear understanding of what their margin needs to be, and then not going against that.
00:03:51:05 - 00:04:17:10
Unknown
So if you need to make a certain percentage, 15 to 20% per dealer, you have a minimum of 30 to $50,000 per deal. That shouldn't change. You should never be talking yourself into underwriting something that isn't even within your your margin profit box. Yeah, and I think for this episode, let's go into, what? Because everybody's wondering, okay, tell me how like, how do I do this?
00:04:17:10 - 00:04:42:01
Unknown
And, I think this is beautiful because we'll walk through all these steps today and by the end of this, you will have a very clear framework of how to analyze deals and do it quickly so that you're not losing money due to your lack of speed. We talk about a lot of times the two biggest levers and deal analysis for a single family house is the after repair value and the rehab cost.
00:04:42:03 - 00:05:14:08
Unknown
And there is a science and an art to this. And I think I can give you the science. You can only get the art through execution and practice. But one of the biggest things that I see people do when we talk about the after repair value is they can't find data, or they're trying to fit data in to prove an after repair value instead of just saying, like, no, there's not enough data to support this deal, I'm going to say no to this deal, move on and spend my time on one that makes more sense, right?
00:05:14:08 - 00:05:40:14
Unknown
And you should also have this is my favorite. It's it's my three strike rule. Right. If a house has two of these three strikes, I pass and don't even underwrite it if it is a non-conforming house. So if it's different and unique, it's not special. It's a problem. And so that that would be one strike if it's on a yellow, you know, road, then that's a second strike.
00:05:40:16 - 00:05:58:01
Unknown
And the third one would be no garage. So if it has two of those three strikes, I'm just going to eliminate that right from the word go and move on to another property. And for those people listening, can you talk about why the double yellow line road. So we're talking about a road that's in front of or on the side of a house.
00:05:58:01 - 00:06:21:19
Unknown
If it's on the corner as two yellow lines instead of like the white dotted line, why is that, significant or relevant to people when they're underwriting? Typically it's less desirable because it's higher traffic. And especially for areas of families have kids. If you have a four bedroom house, likely there's probably children, right? And you'd be less inclined to have them playing in your front yard where there's a main road.
00:06:21:21 - 00:06:47:15
Unknown
Traffic is heavier, so that's less desirable trying to pull out of your driveway. And it's loud. Road noise is loud. Yeah, I think the road noise is loud. And if you think about the what that means is I'm on a double yellow line road, which means there's typically faster traffic patterns and more traffic on those roads. So when I think about my in buyer a family, they got kids were thinking about that this first time home buyer.
00:06:47:17 - 00:07:06:18
Unknown
They want to live somewhere safe, especially if it's like their first house. So really their their nuance, they want it to be safe. They want it to be good schools, all those things. But they get they come. They might see it on the MLS or on Zillow. They show up to the house and they love the house. But they see the double yellow lines and they go, oh, this would be unsafe for my kid.
00:07:06:20 - 00:07:31:07
Unknown
You buy this house, you put it on the market, you're going, this is the best house since sliced bread. And I don't know why nobody's given me an offer, right? Or even non-conforming. So early on, I had a flip that was in a neighborhood where there were all ranches and this house that we bought was, was unique. It it was a two story house, but it was not a colonial.
00:07:31:09 - 00:07:50:02
Unknown
And it had a very strange garage that had a walkway to get to. And to me, I thought, this is great because it's got more square footage than the rest of the houses in the neighborhood. It's we did an amazing rehab on it, and it would it also had a bigger yard. And I and I thought, this is going to be great.
00:07:50:02 - 00:08:07:19
Unknown
It was not great. It took two times longer to sell because it was different than every other house. And so because it was if you're going to buy a house with more square footage, you probably want to be in a neighborhood where all the houses have more square footage. Yeah. I think if you, you always start with the end in mind.
00:08:07:19 - 00:08:26:15
Unknown
Like, who is going to want to buy this house? Like, what's the price point at? What's the activity at, and who's going to want to buy this house when you have unique, like you said, people are they come into it and they go, I love the way this house looked on the outside. I like the price. I get into it and it's like funky and or it's bigger.
00:08:26:15 - 00:08:34:15
Unknown
I didn't really want something this big. You you're making assumptions again. And I go back to like, anytime you're making assumptions, there are some risks, with that.
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Unknown
so you said something earlier on and honestly, tight, tight margins don't reward optimism. They reward accuracy. So when you talked about looking at the looking at the after repair value, having the right data, not being unique, like talk to me about how the process you go through to determine what an after repair value is.
00:08:57:22 - 00:09:24:00
Unknown
Well, what I don't do is rely on optimism and the very best comps in the neighborhood. So I'm looking to find comps that are closest to our properties that that we're looking to buy. So that what I mean by that is within the same neighborhood. Once we get out of the existing neighborhood, that becomes problematic. It's a completely different analysis when it's a rural property, but let's just say the properties within a neighborhood.
00:09:24:05 - 00:09:57:08
Unknown
So I want to see all the houses that have sold. I start if the very tight, narrow window of time. So I'll be looking at the last 90 days, what has sold in the last 90 days, what has come on the market in the last 90 days. And then I'm taking averages. A lot of times what happens is we look at a house that's sold at a great price, and we become fixated on that number, thinking that's going to be our RV without actually considering what was done to that house and what it will cost us to make our subject property equal to that home.
00:09:57:10 - 00:10:20:07
Unknown
Right? Yeah. The other thing, too, is what might have sold six months ago, 8 to 9 months ago, and what's actually being listed right now on the market might be very different. In fact, we're seeing houses now that are listed on the market for 5 to $10,000 less than comps from six months ago. So we have to take that into consideration and adjust our numbers that way.
00:10:20:07 - 00:10:45:00
Unknown
So that's that's the very first thing that I'm taking a look at is I'm just grabbing all the data and putting it into our spreadsheet, which is our deal analysis tool to to give me a way to view the property in different light. So first buy time period, then price by square footage and then obviously the components in the level of a rehab that's already been done to the house or if it's just in as it's condition.
00:10:45:02 - 00:11:04:18
Unknown
Yeah. I think there's this principle that we implement in our, in our business that I learned actually from mentors in seven. Figure flipping is you you typically want to get three good comps on a property that tell a story about improve, kind of like with data, why your house would sell for what you think it will sell for.
00:11:04:20 - 00:11:26:06
Unknown
And I learned very early on that if you have an an anomaly, a high comp, that you throw that one out, like if something sold like set a record in a neighborhood, you throw that out. So I had this strike zone method. I will look at the neighborhood and the last 12 months and see what the lowest sell has been and what the highest sell has been.
00:11:26:08 - 00:11:35:00
Unknown
And no matter what, my RB is not going to go above the highest sell or below the lowest sale. So that's my strike zone method.
00:11:35:02 - 00:11:57:05
Unknown
You know, sometimes when we've looked at comps to and this is where we've trained our team, is that we also want to be the the best house on the market for the best price. We know that it's likely that we can go over asking price. We know that there could be additional profitability. But but we want to also get the most eyes on the property.
00:11:57:07 - 00:12:21:15
Unknown
So our numbers have to be based on a price when we go to sell it. That is just like you said in that strike zone, but closer to the lowest, because that way you get more eyes, you get more offers. Yeah, I love that. And all of these little things are risk mitigation techniques. And it's not just about winning and making money, but it's also about making sure you don't lose.
00:12:21:17 - 00:12:46:22
Unknown
And I remember going through tons and tons of underwriting training and seven finger flipping and getting all these reps. And what I learned was it's actually like from a process perspective, I'm looking at properties, like you said, within the neighborhood, within the last 90 days that sold. I'm looking for pictures of the sold houses that have like laminate, vinyl plank, white shaker cabinets or whatever's popular today and nothing in it.
00:12:46:22 - 00:13:04:14
Unknown
So, you know, it was like a flip house. If you can find flipped houses that prove your point of what your RV is going to be, that's phenomenal. And then I kind of move outward from there. I try to stay within 10% either way of, the square footage, like you said, for size. And then the same bed bath counts.
00:13:04:14 - 00:13:28:03
Unknown
Now that's the science of it, but it gets kind of convoluted when you don't have exact comps, and it's kind of rare that you have exact comps when you do, it's really exciting. But at some point you have to apply the art and you have to start extrapolating. So let's say, for example, your house has a garage and none of the comps have a garage, or your house has an extra bathroom and none of the comps have an extra bathroom.
00:13:28:08 - 00:13:49:10
Unknown
How do you make an adjustment for that? In those cases? I'm actually not giving that garage any value because nobody else has it. Somebody might value it, but when it comes down to an appraisal, you might not get anything for it. And so even if you got your asking price, an appraiser can come in and knock down that price.
00:13:49:12 - 00:14:11:05
Unknown
So I want to be the I don't want to make more guesses. I want to have the most accurate, offer possible when I'm offering to my seller. So I'm not going to take those things into consideration. We see that a lot with garage conversions. Those are very popular here, and most of them also aren't permitted. And so they really hold no value.
00:14:11:07 - 00:14:37:16
Unknown
We just need to know that going in and listing if you make more money, that's a bonus. Yeah. And I like I like the deals where we're not making assumptive additive values to it. Instead we're staying within what we see with our data. One other thing that people don't talk about a lot is the school district. And if I put myself into the shoes of a first time homebuyer who has kids, that's like the first thing they're thinking about.
00:14:37:16 - 00:14:58:15
Unknown
I want to live in the school district where my kids go to school. So if you're evaluating houses in a neighborhood or in a in a market, are you looking at school districts? Are you looking at the school district zoning? And if somebody wanted to do that, how would they go do that? Well, you first I would look at and see where the transactions are happening.
00:14:58:15 - 00:15:20:03
Unknown
That's a pretty good indicator. And then who's moving into those houses? If they're, let's say four bedroom, two bathroom houses, those are probably families moving in there. You can also very easily go on niche grades that. Com and you could see, you know, what the school grade is. If it's in a school, likely more parents are going to send their schools there.
00:15:20:07 - 00:15:41:12
Unknown
Yeah exactly. And then you can just like literally Google school zoning and school zones and see which schools are where and where the lines are drawn, because this is where people get in trouble. Plant High School in Tampa, in the Hillsborough market for example, is a highly desirable high school. But you could be on one street and be in Plant High School, and then you're right across the street and you're not in that high school.
00:15:41:14 - 00:16:08:05
Unknown
You see what's selling across the street for, you know, 800,000. But on this side of the street, they're only selling for 500,000. And you're you could easily use the wrong comps if you don't look at school districts. Right. Also, you know, community, Facebook groups are really, really helpful because just like what you were talking about with Plant High School, even, you know, in Wesley Chapel, they have because of extreme growth, they have redistrict several times.
00:16:08:07 - 00:16:29:15
Unknown
So what used to be maybe in a school zone district can now be an SC zone district. So having a lot of familiarity with the area in which you're investing is is really important. Again, you're you're trying to take the guesswork out and just work on facts and data. I'm curious, though, because there's something that comes up a lot.
00:16:29:17 - 00:17:01:07
Unknown
If you're talking to somebody who's maybe newer to investing, maybe done a couple houses and, they wanted to become more accurate with comping, would you suggest that they start analyzing deals in areas with more comps first, rather than going to an area where there's just not a lot of supporting facts and data? I think all reps are good reps, and I think in most of our markets we have these micro, micro markets down to the zip codes, down to the zip down to the zip code, down to the neighborhood.
00:17:01:07 - 00:17:17:07
Unknown
So I would differentiate those two, like I would look at the more city properties and I would run practice reps in there. And I would also look at the more, rural properties where things are more spread out. And I would get some reps in there because those are two. There's a different answer to each of those. Right?
00:17:17:07 - 00:17:40:10
Unknown
So like we're talking about in the neighborhoods, you want to be in, the neighborhood, you don't want to be in the neighborhood next to it. Even though it's less than a quarter mile away. You want to be in the neighborhood because that's different. Different parks, different rules, lots of different stuff going on there. Now, when you're rural, you might have to go 5 or 10 miles out to get comps, and it starts to become a little more unclear.
00:17:40:10 - 00:17:58:21
Unknown
You start to get a little more uncertainty out there, and you really have to take a big, wider view of the rural areas and, and get as much data as you can to see how those are transacting and land too. And like, don't discount land in the more rural areas. If you think about why somebody moves out there, they want to be out of the city.
00:17:58:21 - 00:18:19:09
Unknown
They want more space. How's the land being valued? And then how many days on market is that? Because land sometimes can take a lot longer to sell. It's still great. People make really great money doing that. But if you don't know that going in and you don't forecast for that, you can end up losing money. Yeah. Okay.
00:18:19:09 - 00:18:38:23
Unknown
So let's pivot a little bit and let's talk about the second lever of underwriting. And let's go into the rehab cost. There are people in the space now who even have done some deals and don't really have a good budget built out, or they don't have good price assumptions going in. Or how can somebody get good at evaluating rehab cost?
00:18:38:23 - 00:19:10:21
Unknown
And how could they get fast at it? Well, and in the beginning you have to collect data. So you are going to have to work with contractors and get pricing. And that is a little bit of relationship building. And so, if you don't have somebody that you're currently working with and you don't really have any connections, I would say pay for somebody's time, pay for contractors, time to walk through a house with you and have them tell you what work they believe needs to be done and what the costs are.
00:19:10:22 - 00:19:32:03
Unknown
That will at least give you a starting point. One of the coolest things that had happened, through seven figure flipping is it's members have access to actually use like a net, a national house of being company that will go through and do all that work for you and manage your rehab. So flipping became a lot easier when we got to that point.
00:19:32:05 - 00:19:51:21
Unknown
Yeah, I think people are probably feeling like, well, holy crap, you guys are telling me to do a lot of things and now you're also telling me I need to do it fast? Well, I think what people have to understand is speed comes from a repeatable process. So some of you guys are spending 1 or 2 hours evaluating a deal and you're losing out on deals.
00:19:52:01 - 00:20:11:09
Unknown
What you really need is a system that you can do over and over and over again. And you become so fast. You're looking for the same details in the same order. And that repetition creates speed. Yeah. And you know, you know, easy way to do that is to track on one spreadsheet all of your, all of your offers.
00:20:11:09 - 00:20:32:08
Unknown
So you want to track your like say the address, bed, bath, square footage, the price, the asking price, if there is one, if it's on the MLS, there's an asking price. And then put in there what you believe the RV is. And then if you don't get the deal, follow that all the way through and go back and see what it's sold for.
00:20:32:10 - 00:20:51:17
Unknown
I think in the first year, I underwrote over 300 deals to the point where I knew what all these houses sold for over time. If I didn't buy them. And my confidence grew pretty quickly because I saw the work that was done, I knew it that work was going to cost, and I was able to have a pretty good idea of what the profitability was on the home.
00:20:51:19 - 00:21:12:07
Unknown
Yeah, and I think it goes back to what you said in the beginning about having a profitability number. And I want to close the loop on that and then talk more about rehab. So you said people might have 15 or 20% profitability number or a fixed number like 30 or 40 or 50 grand. There are some investors who have asked me, how do I come up with that number?
00:21:12:07 - 00:21:37:20
Unknown
Like, how would you decide what your profitability number needs to be? What's that based on for you? It's pretty. It's it changes. I know that's not a good answer. You know, a cut and dry answer. But here's the thing. It depends on the price point of the house, right? If somebody is doing luxury flips, you have to make significantly more money on those flips because of the your investment.
00:21:38:01 - 00:22:10:06
Unknown
Right. And the risk in the timeline. Whereas if you're flipping a house, when I first started, like my first house I bought for $25,000 and I think it sold for 140, like I, the profit margin didn't have to be huge on that house. I thought I would if I at that point like 20,000 was great. Now at this point with multiple projects, the timelines and the risk going into it, we don't want to touch something if it's going to be under 50,000 just because we know what could potentially go wrong.
00:22:10:06 - 00:22:36:16
Unknown
And we've got built in buffers and we're in that $300,000 price range, like 200 to $300,000 price range. So 50,000 is a meaningful percentage for us. And I think the two levers you're talking about that I deduce from that is, the, the the amount of rehab is going to increase, the amount of profit I need, the amount of capital outlay or how much the house cost, plus the rehab cost is going to increase the amount of profit I need to make.
00:22:36:16 - 00:23:05:22
Unknown
If I'm in San Diego and I'm buying houses for 600, putting 100, 150 into them, I got to make six figures on that. Absolutely. That's that's if you're not you're you're assuming too much risk for the little bit up for the amount of capital outlay you have in the amount of rehab you have. And one thing I think that the people fall victim to is talking themselves into deals like, well, it's almost like I want to make 50, but I'll make like 45 and this will still probably be okay.
00:23:05:22 - 00:23:36:19
Unknown
And it's a really good neighborhood and I need a new house. I don't have a house right now to flip, and so it's easy to almost talk yourself into doing deals that you probably shouldn't. So once you set your target margin, don't walk it back. Not without a lot of experience. There comes a time, I think, in your your career where maybe you've flipped enough houses, or you're familiar enough with a specific neighborhood or area where you can make more assumptions.
00:23:37:01 - 00:24:03:12
Unknown
But but right now, when you're starting off and you're trying to build your confidence and you're trying to build your business, don't violate that that threshold say hard to it. And I think less experience means you can accept less assumptions. And I'll tell you, some people have unreasonable, unreasonable confidence in their experience and they're taking more assumptions on than they should, which means they're taking on more risks than they should because they've done a lot of deals.
00:24:03:12 - 00:24:25:06
Unknown
But maybe their profit margin hasn't been that good. Maybe their underwriting has never been tight. So, nothing nothing is necessarily black and white, but we've developed these systems that allow us to make these decisions so quickly because we it's not just the process of underwriting, but it's the principles and which we apply to every deal. Like in spite of the underwriting, we're not going to do certain things.
00:24:25:06 - 00:24:45:21
Unknown
We're not going to take on unique, we're not going to take on something that doesn't have enough data to support our, assessments. We're not going to, take on something outside of our area. So one of the things that creates speed, so process and system create a repeatable, repeatable process and system creates speed. But also having a dialed in by box.
00:24:45:21 - 00:25:09:23
Unknown
So can you talk about how you see investors moving fast when they have a dial them buy box first when they don't. And what to buy boxes. Yeah, a buy box is just simply defining the type of house that you are looking to purchase. So, one of the things that when I first started flipping was that I said, I am going to buy AA3 bedroom, two bathroom house.
00:25:10:05 - 00:25:30:05
Unknown
It's probably going to be about 1500 square feet. And it's it's going to be a ranch. And the reason I chose that was because I knew that if you were a first time home buyer, you were you might buy be buying that if you needed to rent, you're probably going to buy that or rent that. And if you are downsizing, that would be something you would buy.
00:25:30:06 - 00:26:03:17
Unknown
So I felt like I could actually hit three different targets of of people who may have a desire for that home. That was a very desirable purchase. So that mitigated risk, right? I wasn't looking at anything unique. I wasn't going large scale. And then because of that, that footprint was very easily repeatable. After I had flipped a couple, I could use the same cabinets, the same layout, the same paint, the everything could be the same, which would systematize my process and make it less expensive.
00:26:03:19 - 00:26:23:15
Unknown
And here's like some unequivocal facts, right? We have a lender in our community who will do a 100% financing, and they're an institutional lender. So that's not something that most lenders do. We do have access to a couple that do that for our community, but the people who they'll do that for are the people who have a lot of reps doing the same kind of deals.
00:26:23:18 - 00:26:54:12
Unknown
They're looking for people who are flipping the same kind of buy box type houses. The more tighter your buy box, the more likely they are to give you money. So that tells you that that is a big risk mitigation lever for them, which means it's also a big risk mitigation level lever for you. Yeah. And if you think about it, I'm not only controlling the product and the and the quality, I also can really tighten up and identify my timelines because I'll know exactly how long that particular house took to flip.
00:26:54:14 - 00:27:16:19
Unknown
The other benefit that it will give is that if you're consistently doing those in a in a very specific area, you're setting your own comps, you're putting out a product and you're setting your own repeatable comps. And so that helps you better position your next flip. Yeah. And I think I when I talk to investors, they they feel overwhelmed by deals.
00:27:16:19 - 00:27:39:15
Unknown
But the truth is is they're overwhelmed by uncertainty. Yeah. It's not the amount of deals you have coming into your pipeline or it's not them on a, no bad deals. You know, that's another common thing. They're just all bad deals coming out, which is nonsense. It's a it's a lack of a, it's a lack of certainty or uncertainty and a lack of process and systems and the ability to look at something and know that's what I'm looking for.
00:27:39:15 - 00:27:59:05
Unknown
And I know about what I can pay for it. Most of the really talented, good investors I know can be within 1,015% of what their actual numbers end up penciling out to just by looking at a deal and some of the the basic numbers being an ass. All right. So the buy box is really powerful. And this is a lot of stuff for people.
00:27:59:05 - 00:28:24:11
Unknown
But we're able to make decisions in 90s because we know very clearly what we're looking for. And because of the amount of reps you have and our team has. And by the way, it's not really me a little bit me every now and then. Some of you, sometimes we have our acquisition rep who is amazing at underwriting because he took these things that we taught him and improved his skills and got lots of reps.
00:28:24:11 - 00:28:49:05
Unknown
So he's doing 95% of the underwriting and getting us to almost a solution. So what's our 92nd playbook like? How are we making decisions so fast in 90s because of our buy boxes at super now then, what do we how do we use this 92nd rule? Our buy boxes are very, very specific. We are only looking at properties within one county.
00:28:49:07 - 00:29:14:09
Unknown
We are looking specifically at mobile homes. We are. And then we are going two different routes. If it's pre 1990 we're looking at replacing it. So we don't care what the home looks like. We care about what the RV would be. If we are doing a rehab on it. We need it to be a three bedroom, two bathroom or larger, greater than 1500 square feet on a half acre or more.
00:29:14:11 - 00:29:37:07
Unknown
Yeah. And I think the we kind of know our pricing. So and if we look at the strike zone of where these properties sell that we're, we're doing the most of it's at 225 to 330 range. So we pretty much need to just determine is it going to be 330 or is it going to be 225. And even for the 330 range where typically we look at pricing at 299 to capture the most market.
00:29:37:07 - 00:29:55:17
Unknown
So we're underwriting at 299. Right. It might sell at 330, but we already we already know what it's going to cost us to put a new manufactured home on there, or we know what it's going to cost us to rehab a manufactured home because we've done it. And I think that's really powerful. But you cannot have clarity unless you have clarity.
00:29:55:17 - 00:30:14:18
Unknown
Like you must know what your buy box is. And if you're just starting out, you don't have to overthink it. You just have to say, what is selling in my market the most and the fastest of what price point, what type of house, and then say it. That's my buy box. I'm going to focus on those houses and start making offers, right?
00:30:14:18 - 00:30:33:03
Unknown
I mean, we've we've flipped a lot of things, right. Like, I don't think five years ago, if I told you, hey, out in five years, we're going to start flipping mobile homes, you probably would have said, you're get great, get lost. You're crazy. Right? You would have never believe me. Here's what we learned in some of your flipping, though.
00:30:33:05 - 00:30:57:15
Unknown
You don't choose your projects because they make you feel good. You don't choose your projects because do you want to make them look beautiful? You're not trying to be on HGTV, right? We what we did is we looked at data and we identified what is the one thing that is moving in any market? What do people need? We found out that that was affordable housing.
00:30:57:17 - 00:31:23:08
Unknown
And then we asked ourselves, how can we provide that? So we did the research. And so even though it's not the most sexy project on earth, it works really, really well. And then from there, we were able to do the rats right. And and we weren't always right. Sometimes we're wrong in our numbers, but because we had set our buy box, we had set our margin is no less than 50.
00:31:23:08 - 00:31:30:01
Unknown
Okay. When things don't go right, we still won.
00:31:30:03 - 00:31:49:20
Unknown
Yeah. And when you set those types of gates, those types of acid test or principles, then you really start negotiating against yourself, right? Right. And I think what, what we see a lot of people do is they kind of put their game plan together, and then they start looking at something that's outside of their buy box, and they start talking themselves into a deal.
00:31:49:22 - 00:32:22:02
Unknown
Now you start negotiating against yourself and you've already lost at that point, you and you start talking yourself into a deal. You've already lost on that deal, right? Like it's like, I see this a lot, right? Where all all the, all the comparables they have new countertops and new cabinets, but you're trying to figure out how to make this work, so you think maybe I can just, you know, paint these cabinets and and maybe just pop a new, you know, lesser quality countertop on it, and it'll be okay, but it won't be.
00:32:22:04 - 00:32:45:05
Unknown
And when you start trying to talk yourself into making decisions that don't align with where the market is selling at, you're betting against yourself. Yeah. And I think that's that's a such a slippery slope, so dangerous. That's where people are getting their profitability pinched. Here's the other thing. We hear a lot of Lindsay is investors will say, If I'm too strict, I can't compete.
00:32:45:05 - 00:33:03:12
Unknown
I think all these wholesale deals that I'm seeing come across my table. They must be just flying off the shelves. And if I if I'm not offering more or over ask or ask to the wholesalers or to the agents, then I'm never going to get a deal. What would you tell them? I'd say, do you want to be in this business for the long haul?
00:33:03:14 - 00:33:23:16
Unknown
Because you can't assume that all of those people made money. As a matter of fact, we've seen several that have not made money. And I think the other thing, too, is they assume that all those deals are selling. Or how about how everybody thought that, you know, I can't compete with the institutional buyers. Then they kept creeping their prices up, keeping their prices up, only to find out that guess what?
00:33:23:17 - 00:33:48:05
Unknown
Those buyers didn't make money either. They went belly up. Zillow stopped buying houses. They went belly up. And these wholesalers that are sending deals, only 40% of those deals closed, right. So you're assuming that you see a deal and you don't. The numbers are bad. And if you don't offer high, I can't get the deal. But the truth is, is nobody's going to end up getting that deal, most likely because it's priced incorrectly and you're too focused on somebody else's numbers instead of your own.
00:33:48:05 - 00:34:10:20
Unknown
You don't have the right gates in place, the right principles in place to actually be profitable in the business. But you know what? Here's what I'll absolutely guarantee. Failure is taking time to analyze a property and not making an offer. If you spend the time to analyze it, make the offer, and doesn't matter what the asking price is, there it is.
00:34:10:20 - 00:34:40:21
Unknown
Make the offer. It's that simple. Underwrite well. Be conservative in your numbers. Underwrite to actually win every time. And if you're less experienced, you got to add more buffer in there. So if I were to give you a checklist going forward right now, what I would tell you to do is I would tell you to first and foremost, go look at your market and see what is selling for the closest percentage of listed price, and then go see what the days on market is at price points.
00:34:40:21 - 00:35:02:02
Unknown
So for example, if the price point is 100 to 200,000 and the days on market is 37 compared to 200 to 300, and it's 50 and then 300 to 400 at 70, okay, I want to be where they're moving fast and for the most money. So then go decide on that price point. The next thing I want you to do is go look at what is moving.
00:35:02:04 - 00:35:29:12
Unknown
Is it three bed, two bath? Is it ranch style houses? And then go find the correlation in that and the causation and that. List that out and develop your good buy box. The next thing is to go underwrite and evaluate 100 deals. 100 deals. Don't even come talk to me until you've evaluated 100 deals, okay? After you've evaluated 100 deals, you are going to be so much more.
00:35:29:14 - 00:35:50:16
Unknown
You probably will be 100 times more experienced than before you did that. And at that point is, when you might find yourself getting stuck somewhere, then reach out to somebody, okay? Just remember to like that was that was such a great explanation. Just your buy box is your friend. It is not there to limit you. It is there to protect you.
00:35:50:18 - 00:36:10:04
Unknown
Okay, let's go into a little bit of a field report before we close this out. The field report is, I think one big difference between us and a lot of people is we're actually doing this every day. This morning, I woke up and I immediately drove to a property and a deal that we're doing. So can you talk about give us an update from the field?
00:36:10:08 - 00:36:33:03
Unknown
Yeah. So we actually are we were in Spring Hill this morning and we have two, brand new mobile homes going in on those properties. The old mobiles have been removed, so we have a clean slate now, but we are working out the timing on what needs to go where, when and the permitting for that. So we had a lot of decisions to make this morning.
00:36:33:03 - 00:37:00:16
Unknown
We, we met with one of our mobile home installers to game plan it and figure out one. Do we have to replace electrical boxes this morning and two, spring for termites so that we can have our homes listed for our FHA or VA loans that require those not waiting until we put it on the market to do that, that sort of work, and then determining where we're going to put our septic systems.
00:37:00:18 - 00:37:20:13
Unknown
Yeah. And there's a lot of nuance with that that, you know, we don't know. We didn't know every single little component what gets ordered when and the timelines associated with everything. And and here's the hard part is depending on who you have do it. It could be a different timeline. So we are learning the people that we're working with at the same time from the field.
00:37:20:13 - 00:37:41:06
Unknown
So that's the art part of the whole underwriting thing we made. We we made necessary assumptions, risk, we assumed, but we also bought so that we could embrace some of that risk. Right. That's good. That's I think, really important for us to talk about because there were unknowns for us. And we knew that that was a decision that we made, but we didn't do the deal.
00:37:41:06 - 00:38:10:10
Unknown
If there were unknowns. Right. We did do the deal. But what did we do? We bought it cheap. Right? Exactly. Because that mitigates risk. And so we said the worst thing that could happen is we don't make as much money. Yes. And that deal specifically, we were talking about the difference between making 50 grand or 150 grand. So if we make a whole bunch of mistakes, blow the timeline and forget stuff or stuff we didn't know about, that doesn't get put in there.
00:38:10:10 - 00:38:34:02
Unknown
We only make 50 grand, right? But we don't lose, which is as important as winning in this case. More important, especially when you're trying to gain experience. This was something a newer model for us, something that we are learning or perfecting or creating process for as we go. And so we're okay saying we may only make 50 on this particular project.
00:38:34:04 - 00:39:00:02
Unknown
However, after this project, that would not be the case. Yeah, exactly. And I think that to report is real life stuff that we literally were dealing with this morning. So I, I thought we would do something really cool and provide this sop, the stuff that we do in the training so that other people can make decisions like we do with certainty and be able to analyze deals faster and win more.
00:39:00:04 - 00:39:17:18
Unknown
And I know you have volunteered to do some training to walk people through and train them on the very specific system and process. Can you talk about that a little bit? Yeah, actually, I think before we even do that, obviously I've been underwriting deals for quite a long time now, but, you gave credit to our team a little bit earlier.
00:39:17:18 - 00:39:38:14
Unknown
We actually have a team I don't know if everybody knows, but knows this, but we have a team of VA's who actually work within our business. You myself and Bill are the only state side, employees of our company. And so, we have used this system, this method to teach our acquisitions manager who is outside of the US, in the US.
00:39:38:14 - 00:39:59:21
Unknown
Right. It's a big deal how to underwrite deals. He's never been to the US. He's never seen houses like the ones that we buy, certainly not the mobile homes. And he's able to effectively do it. So I'm actually going to teach that exact same process in a class. It's it it's a deal. Oh my gosh, it's a deal analysis.
00:39:59:23 - 00:40:17:18
Unknown
I'm going to actually teach that same process in my deal analysis class. Okay. Cool. So for anybody listening to this wait, what day are you going to do this. And I guess we'll put a link in the comments if people are interested. Yeah, we can put a link in the comments. The date of the challenge is Tuesday, February 24th.
00:40:17:21 - 00:40:44:18
Unknown
Okay, so we've got a deal analysis training happening on Tuesday, February 24th. You can get signed up at the link in the comments and sharpen your skills like the worst thing you can do is be uncertain. How do you create certainty? You create certainty by getting smart at the process, understanding it, learning it, but then getting repetition. So if you come to this challenge, you're going to learn and work with Lindsey to get really good at underwriting deals.
00:40:44:18 - 00:41:06:11
Unknown
And we all know everybody has heard you when when you buy the deal. That is how you make money in this industry. Yep. So 90 minutes, we're going to get deep into underwriting. We will actually share the exact tools that we use within blackjack real estate. And, I will have time for some Q&A too. Okay, cool.
00:41:06:11 - 00:41:30:11
Unknown
And then one other awesome component of the deal analysis challenge is we're all going to use the same exact tools that we use in blackjack. And I think we have, asked that organization to give us like a discount or free trial. So everybody can be using the same tool during the challenge with us, because this won't be passive, like you will be actually doing the thing so that it becomes concrete for you so that you can make money in this business.
00:41:30:15 - 00:41:45:01
Unknown
And if you want to check it out early, there'll be a link in the comments for that too. But that's what we're going to be using during the challenge. Yeah. And normally we don't share that outside of our community. So this will this will be the first time that we're going to do that. Love it. Can't wait okay.
00:41:45:01 - 00:42:08:14
Unknown
So thanks for tuning in to this podcast. Seven Finger Flipping. With myself and Lindsay. We talked deeply about how to analyze deals. Do it fast and do it accurately. I would highly, highly encourage you guys to come to the training on Tuesday, February 24th, where Lindsay is going to walk through all of this process in detail, and you're going to get the underwriting tools that you need, and you're going to get the systems and processes that we use.
00:42:08:14 - 00:42:17:14
Unknown
So if you got something out of this and you thought this was, wow, this is really helpful, you're definitely going to love the challenge. I'll see you on the challenge and I'll see you on the next podcast.
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