I am continually asked about the volume of business I do flipping and wholesaling homes which I intentionally have kept close to the vest for a number of years. This weekend, however, I was convinced by an old friend to divulge some details of my business with the intention of expanding my social media reach to potential bird dogs, sellers, private lenders and the such in addition to elevating the knowledge base of who I am to those who don’t know me in the market.
Since I already bombard you guys with my wholesale properties on social media, I figured I would spread out the information for everyone, so over the next couple of weeks or so I will be sending out the details of each individual wholesale deal, flip under construction, flip on the market and flip under contract I have going on. The numbers are constantly changing however here is a snapshot as of this morning of my current activity which I will be sending out in more detail over the next couple of weeks:
Current Inventory as of 7/18/16
I want to be VERY CLEAR that the intent here is not to establish a platform to teach or educate. I am NOT AN EDUCATOR! I do however pride myself on being the biggest and best wholesaler and flipper in the Arizona Market which I feel is the most difficult market to have success flipping in the entire country. I am the guy all the educators, social media experts and gurus claim to be. I don’t drive a Lambo or wear Lois Vuitton shoes, I wear shorts and flip flops most days to my little office in Chandler and I haven’t worn a suit in years. I have been doing this for close to 16 years, and I could not even guess the number of homes I have wholesaled or flipped. I have also lost more money than most make in a lifetime and likely made more mistakes than anyone else in the business, but that is what put me where I am at today. Whenever I have fallen, I have always just picked myself back up and gotten right back to the grind, and failure is something that still happens to this day. I lose money on about 1 in 18 deals…BUT I make money on the other 17.
A primary intent of this campaign is to also set myself apart from a number of my competitors in the wholesale market, and to create a knowledge base for people to deal directly with the biggest buyer of SFR’s/Townhomes/Condos in AZ. As you can see by my inventory snapshot, I actually close deals. I do not tie things up to try to wholesale the property only to bail at the last minute if I can’t wholesale it. The network and marketing campaigns I have developed along with a number of local bird dogs, sellers, wholesalers etc…know from the word go that if I commit to the deal I will close and close fast. From their perspective the deal is done the minute I say I will take it, which allows them to focus on finding deals and making more money rather than wasting time trying to find a buyer. Regardless of what is represented by my local competitors there is no one else in my market who can close on every deal they are presented that pencils or is profitable enough to fit their model. Since I am the one who makes the final decision, I can underwrite a property faster than anyone in town, which allows me to say yes or no sometimes in minutes but never longer than a couple of hours. (I take my laptop everywhere) Therefore if you have a wholesale deal you would like to sell or know a distressed seller who needs to close quickly. Please send it my way either by PM or email me at email@example.com.
A quick message to new and struggling real estate investors out there:
As the saying goes beware of wolves in sheeps’ clothing. However I suggest that a more suitable phrase for our industry is beware of wolves in wolves’ clothing. I warn you all that we are all working within small confines full of the most unscrupulous sharks, thieves, man eating lions and any other form of nastiness you can think of. As you are sitting in the hyped up-“your going to be a millionaire with no work or effort” seminars just keep this in mind. This is a fact they conveniently omit from their seminars.
Heck one of them may be standing in front of you trying to get you to unload your checking account or max out your credit card to pay him or her to learn the business. If you hear the phrase “you will make it all back on your first flip” I would rethink it.
This is a one of the most cut throat businesses out there and there are people in the industry that will cut your knees out from under you at the drop of a hat. There are a lot of well financed, very smart, very savvy, very evil individuals and groups who do not want to see their competition increase. Even the ones educating have a tendency to hold back the best tips and information for themselves. They are very Clever in their delivery of information.
Ironically the better you are, the better you get, the more savvy you become at this business the more attention you will receive from the worst of these individuals. The business is too profitable. They don’t want more competition, and they will go to great efforts to run you out of the business.
I have been in this industry for over 1/3 of my life. I have not only battled through the worst financial and real estate crash since the great depression, but I have also personally partnered with, been screwed by, beat back, sued, been sued, and fought with some of the worst of these types. I have deep scars to show for the battles I have lost, but I have always gotten back up to fight the good fight. After it all I am still standing strong and kicking ass, but I don’t want anyone to think this ride is smooth and easy. I have also learned from every fight, failure and fall. This education has not been cheap, and to the chagrin of two especially nasty individuals, I am here to stay regarding of their best efforts.
This business can be unbelievably profitable and there is plenty to go around for everyone, but I tell you BEWARE!!!! Do your due diligence on anyone you are thinking of partnering with, getting a private loan from, lending money to, or thinking of paying to learn the business. If their attorney shows up on the FBI.gov/memphis website for being indicted for fraud you probably want to steer clear.
I have been approached by every show in town about teaching and getting in the education business, and I have passed every time. I tell you all this, because I am not interested in selling you a dream or getting paid $30,000 to teach you this business.
I will however sell you a wholesale property. If you are a new, old, or struggling investor, I will meet you at the home. I will go over the comparables with you. I will walk you through the property and suggest renovations, I will set you up with a contractor and tell you how much everything should cost so you are not taken advantage of. I will set you up with a hard money lender or help you set up private money lenders, and I will line you up with a listing agent to sell it for top dollar.
I will also buy your wholesale property. If you have a deal you can’t get funded or closed send it to me and I will give you an answer asap. Sometimes within minutes, and I don’t care how much you make. If the deal makes sense, I will do the deal.
I am the fulfillment of everything the educators teach. I create Win-Win Transactions.
If you are a realtor contact me about my upcoming flips so we can get your clients into exactly what they want.
I was provided a friendly warning earlier this week that I will likely be banned from most of the real estate forums for my posts. Well…So be it. Send me a friend request as I post these on my page as well as my company page Win-Win Transactions.
Have a great Saturday!
To give you an idea of the potential opportunity I was interviewing for, I will let you in on the volume of business which was at hand. I have averaged over 75 retail sales every year for the past three years. These are not my wholesale flips which are sold through my marketing platform and my site. These are just the full retail remodels that were sold through an agent on MLS. I have set a goal to exceed that this year. The sales prices of this body of work range in price from a $35,000 condo to a $2.1 mm home in Paradise Valley and everything in between. To put it lightly we are talking about a potential for a considerable income stream solely on my business.
I was utterly shocked at the lack of preparation, presentation and unprofessional approach taken by a majority of the candidates interviewed. This was not only evident within the interview but also the aftermath when they were informed that they didn’t get the job. I had one agent show up in workout clothes and a baseball cap. Another agent actually told me that I am a pain in the ass to work with yet still put on the full court press to close the deal. Another agent simply responded “Yeah I will take it” when told the address of the potential listing. My response was “You will take what”. I also received a couple of insults when I told a few of them that they didn’t get the listing.
This initial listing will be priced at over $700,000, so even if it were just this listing I feel it would be worth putting some effort into getting the business.
The agent who was awarded the listing and the potential for all my business moving forward has quietly worked his ass off for the past few years and has worked his way into the top five in total volume last year out of over 25,000 listing agents in the state. He has a substantial reach in the market, a great team behind him, and a top notch marketing approach. We have done deals together for over 4 years. Over that time he has sent me deals that I have made huge returns on and I have sent him deals that he made great money on as well. He also flips houses himself and therefore understands the risk taken when flipping homes. He also understands the urgency to not only get a property sold but the importance to make sure my partners and I make the maximum profit on each flip with the quickest turnover. He doesn’t blast all over Facebook about the money he is making, the trips he is taking or the shit that he is buying. Everyone around him knows he is doing well….VERY well. He showed up to my office 15 minutes early for our appointment first thing on a monday morning. He was dressed professionally, gave a top notch presentation and laid out his marketing plan. He knocked it out of the park, and therefore was rewarded with the job.
Keep in mind in addition to numerous other deals this agent handed me 7 properties I bought from a hedge fund he worked with at the end of 2012. My partners and I wholesaled all 7 homes within 3 weeks and made over $200,000 on the package without even touching one of them. If there is anyone in this industry who would have a justified sense of entitlement from me it would be him, however he showed up and represented himself as if we had never done one deal together.
I tell you all this for multiple reasons.
First, I want to provide some advise to any new or up and coming realtors. This is a business. It is a professionals’ business, and the ones who truly succeed are the ones who approach it with that mindset. Don’t dress like a bum. Act professional and be professional. AND be willing to actually work. You can be vastly successful and there is relative no ceiling on the income you can make, but you will have to work for it. It may be easy to tell that client that their house is only worth $200,000 when you know if you actually worked at it you could sell it for $250,000. It may be a quick and easy check for you, however the difference in your commission is only a couple hundred dollars, but to mom and pop smith or John Q Investor your complacency is taking huge amounts of $ from their bottom line on the HUD. I am a unique client as I have been a certified appraiser for over a decade. Unfortunately I can’t be misled on the real value of my homes. There is nothing more infuriating to me than an agent lowballing an client or investor on their list price so they can make their commission with little work or effort.
Second, if you are just getting started in investing in real estate. Don’t use your partner to list your house. You need to have the ability to fire them if they are not performing and if they own the house with you it will be very difficult to do so. Don’t use your buddy who happens to have his license and he will discount his commission for you. Don’t use a family member either. Same concern….In addition, interview as many candidates as possible. Trust me I know it may be difficult to find a realtor who treats the interview like an actual interview. However you have to find that bulldog of a negotiator, marketing guru and hustler. It will make all the difference in the world to your success. They are out there but it is only about 10% of the industry. The rest like to sit around in the pajamas and throw a sign out in front of your home and wait for the calls or emails to come in. (I actually had a agent tell me that one time….I don’t like to get dressed up. I like to work at home in my pajamas). LOL
I hope you enjoyed the input. I am sure I will piss off a few with this one today. Have a great Friday and a great weekend and get out there and take some ACTION.
One of the first things I ask any potential wholesale buyer or investor is what kind of return they want to make on a Flip. Their response usually is a good indicator of the detail of their equation to analyze a potential deal. If they respond with “I want to make $X amount of money on the flip”, it may indicate they haven’t thought through the response. Someone who says they want to make $10k or $15k on every deal may change their mind when it comes to buying a $500,000 flip.
In my opinion, the return should be based upon the risk and amount of total investment. Depending upon the competitiveness of the market, a good net return on a flip should be around a 15% to 18% return on the total outlay of capital. This net return should be calculated after all acquisition costs, improvement costs, holding costs and interest on loan are paid. In my experience it is important to have an equation rather than hoping for a flat number when analyzing potential flips.
This equation consists of three factors. These factors are: after repair value or ARV, the costs of rehab/holding costs and the acquisition price. I prefer to work backwards when determining my acquisition price or final offer price for a potential flip. There are multiple factors that go into this including the condition of the home, age of the property, as well as price point. However, I usually start by estimating the retail or ARV of the property. I then deduct the closing costs, estimated rehab costs, and the estimated holding costs. I then calculate an offer price based upon the target return and these numbers. This number can change if paying cash vs. servicing debt as well. At this point, I have a hard number to offer for a home. If I can get the property at that number or below it will likely be a profitable venture. Remember….you make your money on the buy.
There are obviously many factors that go into this process and analysis, and the quicker you can get to a final number the more deals you can likely move on. Fast money and fast answers always win in this business. Keep an eye out for future blogs going into more detail of this analysis and let me know if you have any questions.
I have begun networking quite a bit more over the past couple of months within the real estate investor community, and a consistent question is posed regarding how to value a property. I consider my ability to do this an incredible competitive advantage in my business, and it has allowed me to see and take advantage of multiple opportunities over the years. This blog will shed provide an overview of my approach to determining the retail or after repair value of a potential flip.
When I began buying at the Trustee sales again in 2011, it shocked me to realize how many investors (my competitors) were using Automated Valuation Module’s (AVM’s) such as Zillow, Redfin or Eppraisal to determine the after repair or retail value of the properties they were purchasing. These valuation models are a decent baseline, however they compute value simply on a data in-data out basis, and therefore are reliant upon the data input to spit out a number. They are simple and easy to pull up, however they are grossly inaccurate a majority of the time. When the competition is using inaccurate information for the most important factor of the flip equation it creates an opportunity to do a little more leg work and due diligence to have a substantial competitive advantage over your competition.
We are going to go over a step-by-step approach to analyzing and determining retail or after repair value for a property. This will give you the ability analyze a majority of all potential deals you will are presented or come across; however it will not cover 100% of them. I would need to write a textbook to cover every single scenario possible. Leave the really difficult ones for me to pick up.
I would like to first go over a few philosophical points as well as some preliminary topics to get warmed up.
Market value of a property is defined as the most probably price a property will sell for in a competitive and open market.
Market value is also relative to the current market conditions and timeframe. A home, which was worth $400,000 in January 2007, was likely worth $180,000 in December of 2009 and is likely worth around $275,000 today.
For the purpose of lending, underwriting and buyers who are getting a loan, market value is based upon historical data. This means it will be based upon the comparable sales over the past 3 to 6 months. A cash buyer is likely to be more focused on the now. In my primary market, Phoenix Metro area, the inventory is so low and the competition is so fierce there are a number of market segments in which the market value is based upon not what is sold but what is available. There are hedge funds, private equity funds, individual cash buyers who all want the same type of property. They are all paying cash and they are buying whatever is available, sometimes at prices well over the historical sales in the area. This is a good example of the law of substitution. If you don’t buy this, what can you buy? If the rest of the homes on the market are $10,000 more than the one you are buying, yours is a deal even if it is $5,000 over the highest sale.
Now let’s get to the meat of the topic…. How to determine a retail or after repair value of your flip.
First and foremost, get MLS access and learn how to navigate it or how to direct your realtor to navigate it. Whether this is your own access or you directing a realtor on how to search, you need this to determine an accurate value. I have flipped many homes outside of my market and each time I directed my realtor to provide me with the data I needed to determine the retail value and it was never from Zillow.
Next let’s discuss what we are looking for. When researching comps for a renovated flip, we want to eliminate Bank owned homes, short sales, HUD homes or pre-foreclosures. These homes are non arms length transactions. They are considered distressed sales, and they do not represent an accurate indicator of retail value for renovated properties in the area. We also want to eliminate run down non-renovated properties from private sellers (however we may want to make an offer on those). There is a definitive difference in value between these types of homes and the renovated/turn key homes we want to utilize as our basis of value. This is the major problem with the AVM’s I discussed earlier. Zillow and the like have no way to separate these out. Therefore their numbers get skewed.
To determine the market value of a home we need to have an acceptable amount of data to come to a conclusion. This amount of data differs from case to case, however it traditionally would be acceptable to have 3 to 5 sales, 2 to 3 pending sales and 2 to 3 active listings that are as similar as possible to what your flip will be after repairs are complete.
When looking for viable indicators of market/retail value, we want to ideally find as many homes as possible which have sold within the past 3 to 6 month that are as similar to what our property will be as possible. In most new communities this is usually quite simple. You simply need to look for properties in the same subdivision, built by the same builder and have the same floor plan. (these are called model matches to your property) You then adjust for any minor differences such as a pool, garage count or lot size, and you have your ARV.
****Always remember to be conservative with your adjustments. This will keep you from over adjusting and possibly over valuing your flip.
If there are no model matches that have sold, then you should look for properties in the same subdivision, built by the same builder that are similar in square footage. Make adjustments for the differences and you have your value.
Be careful though, there are subdivisions which are called master planned communities which have multiple builders. Make sure when you are researching a master planned community that you do not use a superior builder’s home similar in size to compare to your property.
After searching to that point you do not find any viable comparables, you need to now expand your search to include the surrounding market areas. This may mean going outside the subdivision, however although we are going outside the subdivision, we do not want to cross any major roads or thoroughfares. We also want to stay within a one mile radius of the subject property. We also want to be aware of any school district boundaries as these can have a substantial affect on the value of properties.
If at this time we do not find an acceptable amount of data, we now want to simply search for similar properties within a one mile radius of the subject. At this point, our search will jump over major roads and school district boundaries. We are simply looking for a similar home to ours. If needed we may need to go 2 to 3 miles out to find viable comparable sales. This would be the case for a unique luxury home or a horse property on large acreage in the middle of nowhere. At that point, I would shy away from the deal due to the complexity, however that may also be an opportunity that no one else wants to take the risk on.
Keep in mind, these searches need to be implemented to a point where there is enough data or sales to accurately determine value. The only reason you would expand the search or continue searching is if there was a lack of acceptable data to determine the value. If you have four model match sales in the same sub, you can stop there. Those will be the primary indicators of market/retail value for your property. There would be no need to continue your research. However on the other hand, if there are no sales at all within the subdivision, and there are no homes within the same square mile that have sold, and there are no homes within a mile radius….then you would continue to expand your search until you found a good amount of data or sales to determine your value.
Once you have determined your value, you need to implement you flipping equation to determine what you are willing to pay for the property. This will be in our next blog.
Keep an eye out for our upcoming blogs and make sure you are on our buyers list. You can subscribe on our website at www.win-wintransactions.com .
Thanks and have a great day!
John J May
Win-Win Transactions, Inc.