00;00;00;02 - 00;00;26;07
Unknown
There's a deal out there right now that's more dangerous than a bad deal. It's a deal that looks good on paper. And I've been there. I've even done some of these deals. The numbers make sense. The RV is there. The margin looks fine. And then somewhere between the contract and the closing table, it quietly kills your cash flow and your margin, your timeline.
00;00;26;07 - 00;00;50;05
Unknown
And probably here. Next deal. Here's the thing about the current market. The deals that are hurting investors right now aren't the obvious bad ones. They're the ones that looked good on paper and bled out slowly. Let's talk about what's driving that. And what you need to be watching for.
00;00;50;07 - 00;01;11;29
Unknown
All right. Every flip for all of us. We get an email from a wholesaler, we get a lead, we get some information, and it really starts on a spreadsheet or some type of analytical tool. You modeled the after repair value. You estimate the renovation cost and then you back into your offer. You hit your numbers. You make the offer.
00;01;12;01 - 00;01;40;16
Unknown
Pretty simple process, but here's what the spreadsheet doesn't always capture. Contractor delays carrying costs that come with them. Material price increases mid project because we went to war with Iran. Buyer financing fallout. So when you go to sell that thing appraisal gaps insurance surprises mid transaction somebody goes and steals out some of your materials. That happens all the time.
00;01;40;18 - 00;02;01;10
Unknown
Price reductions when the listings since longer than expected. And by the way I don't know if you know this. If you think you're just going to turn it into a rental and you start reducing the price, did you know that the DSR loan to only count the repair value at the highest price you were listed? So if you go from 200,000, you drop that thing down to 250.
00;02;01;10 - 00;02;26;06
Unknown
They're not going to underwrite that over 250 because it says what it tells them is the marketplace says it's not worth more than 250. Now, each one of these is a small leak in the deal. But right now in this market, it seems like they're all leaking at once. And if your margin, if you were underwriting on thin margins, you're like, good take in $15,000 of profit or 5% margin.
00;02;26;08 - 00;02;46;08
Unknown
You ain't got room for all those things to be leaking. And I keep going back to the good old days, because I feel like that's what resonates in most of your mind. You saw a lot of the good in 2020 and 2021. The market absorbed those mistakes. Budget over on no problem market. The values went up sat first.
00;02;46;11 - 00;03;12;08
Unknown
You flip sat for a little extra time. Cool. Prices were rising. We had an investor. I remember in 2020 there in New York. So big margins already. And they bought a bad deal and they had term damage and they basically had to rebuild this whole house to home 13 months to finish the project. And because of that, they actually made $300,000 net on that property, because that market appreciated so much.
00;03;12;11 - 00;03;36;15
Unknown
And the supply and demand was in their favor. That ain't today's market. Today's market is flat to declining at best. Buyer affordability completely constrained. You guys know the story. Days on market obviously going up has been for a couple of years now. Price reductions are flat out happening period. Things aren't selling at 100% a list price almost anywhere.
00;03;36;17 - 00;04;03;06
Unknown
And appraisals appraisers are putting their neck on the line. They're being way more conservative to. So the deal that might have had a $30,000 margin on paper in 21 could have been fine overruns, and no problem. That same the other day, 15 can overruns delay making money? You ain't going to make money because if you got 50% overruns, you went over time to a lot of problems in today's market.
00;04;03;08 - 00;04;25;10
Unknown
So you got to be professional. Here's the larger picture though. We're in a market where every cost input is still elevated from the inflation cycle. I know the news says inflation is under control and it's down. It's not true. Go to the grocery store. It's more expensive to live today. And then again, cheaper labor hasn't come down. We're losing jobs.
00;04;25;13 - 00;04;44;25
Unknown
Material prices are going up because of the war in Iran. Insurance has not gotten better, although we've had all kinds of state and local government promising award and carying costs, debt, service, taxes. You talk the hard money lenders aren't giving you better rates than what they've been given you like things don't go down, they usually only go up.
00;04;44;27 - 00;05;06;27
Unknown
And with Arby's, the values of properties coming down a little bit, it's a squeeze. Cholesterol values are flat. Margin compression is killing these good paper deals. And I'm not trying to be dramatic. I mean, I'm really not. I'm like trying to bring the real talk to this podcast. Like, we got to be honest with what's going on in the marketplace.
00;05;06;27 - 00;05;28;25
Unknown
It's the only way to gain the right awareness so that you can win today, because it is still the best way to make money in the world is through real estate. 96% of the Millionaire Plus in the world are invested in real estate. I should tell you something now. Flipped margins going down. It doesn't go down like overnight.
00;05;28;25 - 00;05;54;16
Unknown
It shows up slowly, deal by deal, by month, by month. And then you look at your pal and you realize that these three projects made you when you calculate your time, energy, effort like peanuts. Man, minimum wage and some cases. I'm just being honest. So here's my practical advice for this current environment. First, underwrite to reality like it is so important that you underwrite to reality like no optimism.
00;05;54;16 - 00;06;23;14
Unknown
If there's not good data, then there's no assumptions you can make that are going to make that a good deal. Stop underwriting the best case. RB and I talked about this underwriting strategy on a couple different episodes of what happened in the worst market. The worst market fell about 1% per month, 2008 to 2012. So if you're going to hold some for six months, take 6% off or whatever that good solid RV you're coming up with, it's it's a deal still works and great.
00;06;23;14 - 00;06;54;23
Unknown
Do it. Make money. If it doesn't. Don't do it. Don't take on the deal just to do a deal. Second, scope for completion, not impression. Stop over renovating. I've been saying this over and over. The market right now does not reward HGTV. Now I'm not saying some markets you don't have to do a nicer renovation. You're looking at the actual comps, not like comps from last year, but comps that are selling this month and last month, like recent comps in the subdivision.
00;06;54;27 - 00;07;17;04
Unknown
And I said this on a previous episode, but like, you got to renovate like a CFO. The numbers in the data have to drive your decisions. Not like a designer. Now third, you got to get more operationally efficient and shorten your hold times every extra month is a carrying cost multiplier. It's costing you a boatload of money. Get in.
00;07;17;04 - 00;07;42;12
Unknown
Execute. List it. Sell it. Like if you do the things that you're doing are not doing that better and faster on every deal. You need to reevaluate your system. Don't hold for a better season if you don't have to. Now there are some nuances. You know, I came into at the end of last year. I had a deal that we just finished up and, early December, like between, Thanksgiving and Christmas.
00;07;42;12 - 00;08;06;23
Unknown
Right. And I'm like, oh, nobody buys anything during Thanksgiving. Christmas. I listed it, and by the way, I bought in a below medium price point market and I listed on December 2nd, sold and had it under contract on December 3rd. Five grand over ask. So you got to be smart. Time is your most expensive variable right now. Fourth, you got to have multiple exit strategies before you buy.
00;08;06;25 - 00;08;25;25
Unknown
You need to be thinking about what happens if this flip doesn't sell. What else can I do? Can I turn it into an Airbnb? A mid term rental a long term rental? What strategy have I had to flip go bad in 23? The only person who made money on it was my lender and he made at least I think he made over $60,000 on one deal as a lender.
00;08;25;25 - 00;08;45;22
Unknown
Private passive lender, insane. And I had a decision to make. I was going to either take 70 grand of my own cash to sell it to somebody else, or I was going to refinance it and turn it into an Airbnb. I did that. I turned it into an Airbnb. You need it. Don't wait until the end when it's not working, to make that decision.
00;08;45;22 - 00;09;05;13
Unknown
When you're emotional and you're you're all bent out of shape because it's not going well. Okay. Can you do a lease option? Can you bring another investor in to buy it? And sometimes can you just get rid of it at a loss and reload with new good inventory? Sometimes that is the play. Now here's the signals I'm watching.
00;09;05;16 - 00;09;27;00
Unknown
Are your flows sitting longer than they did 12 months ago? Do you even know? Are you tracking any of that data? Are you doing price reductions more frequently? Do you have a price reduction strategy? Are your contractors taking longer? Are you absorbing that cost? What about appraisals? Were appraisals landing right now? And what are concessions looking like in your marketplace.
00;09;27;00 - 00;09;46;21
Unknown
Because we can underwrite this on the front end and win at the buy. That's really important if you're seeing more than one of these things. The deal that looks fine on paper might be the one that quietly crushes your business. So you need to look at those things that we talked about today. Go back. Relisten to it. Write those things down and then go evaluate your business.
00;09;46;22 - 00;10;15;16
Unknown
This market isn't punishing bad investors. It's punishing optimistic ones. And the facts aren't that complicated if we're being honest. Tighten your underwriting. Become more operationally efficient. Trim your scopes down. Rehab to the market. Shorten your old times and build multiple accents. Honestly, that's not new news, but it is the most important things in today's market. Look, some of you guys are like, cool.
00;10;15;16 - 00;10;40;04
Unknown
I hear you, Adam, but I don't know exactly how to be operationally efficient or underwrite or analyze deals really well. Dude. No problem. We have a free training coming up. Lindsay, who's the best, most conservative underwriter. Super doubt then does this training. You know, a couple times in the last couple months, people loved it. So I'll invite you guys to come to this deal analysis training that she's going to do.
00;10;40;04 - 00;10;59;21
Unknown
It's completely free. By the way, just come. She trains, she goes through her entire process. It is super elite. And this is what you need in today's marketplace. So there'll be a link in the description in the comments. Jump in here. Tighten up your underwriting. Become more operationally efficient. I'll see you on that mat. Deal analysis. Train.
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