Episode Transcription
We also are gonna be talking about some different types of financing other than a regular mortgage. We’re gonna talk about hard money loans, we’ll talk with a hard money lender. For those of you new to this, that will also give you some more definitions and Tell you what hard money is.
We’re also talking with a credit counselor about how to get out of debt and improve your credit score. And just general overall things that you can do to improve your chances and improve your ability to get financing on your deals.
Yep. And if you get outta debt, just getting outta debt and knowing how to manage your money better not only gets you better financing, it just makes life easier on you.
You have less things to worry about and more focus on getting done what you need to get done in your real estate business.
]It really opens up the options for you too, as far as. Is how to get deals done it’s always a good thing to have better credit. . Exactly. . And I just wanted to remind you too that this show is for you.
Send us your ideas. You can email ’em to us and get real show. At get real r e i.com, we’d be happy to hear any suggestions you have. If you have anybody out there that you know of that is somebody on a national level that you’d like to hear, interviewed that, go ahead and send us their name.
We’ll get ahold of them, see if we can get ’em on the show in the near future. A lot of people are more than willing to talk and help educate you a little bit more about what they’re doing and what they can do to help you out. So if you got somebody, just let us know about that. Just know somebody that’s interesting that you’d like to hear, talk.
Go ahead and send us their information too. Or if you’re listening and you’re somebody that Works in the real estate investing field and you’d like to talk with us. Just go ahead and send us your number and we’ll contact you and see what we can do together to make it interesting. Again, this is an educational show for everybody out there that’s listening, so we wanna make sure that we tailor to your needs and what you wanna find out about in real estate investing to make your real estate investing careers more successful.
You can also go through the website and send that information to us as well. The website again is get real r e i.com. There you can get the downloads for the past shows read our blog, shoot us questions just get general information that way also.
And we have the liner notes for the show in there too, that include just a little background on what we’re talking about in each show.
But just as importantly, any links that we talk about on the. We’ll be available there too, so you can just go over there and click on that information. So if you’re driving in the car, don’t worry about writing it down. You just try to remember get real rei.com and all those links will be available to you.
All right, So since we had a little scheduling problem this week, we’re gonna just hit on some high notes cover. So a few different topics. Probably not going into anything too in depth, but just hit a few generalities. Do a little housekeeping on some things we’ve mentioned in the past and wanna get more information to you on.
So with that being said, you wanna talk about these HPI future.
Sure. I, every day I look across to see what kind of new and I guess, interesting real estate investing tools there are out there. And one of the reasons we did this show was not. Just have a way to talk about the same old ways to invest in real estate.
We wanted to expand the horizons and have people tell us about different things they have going on that are different ways to invest other than maybe just the straight rehab or renting a property. Yeah, something like that. I came across this group and I’ve gotta give a disclaimer. I don’t know anything about them other than what I’ve seen in their press release on their website, and I do have a call into them to get back to me to do an interview.
In a future show to tell us a little bit about them, but the name of the company is I N R E X, which I don’t remember exactly what it stands for, but it’s a real estate exchange just like the Nasdaq or the dollar or something like that. What they do is they trade futures and if you don’t know a future is, it’s basically your guess as far.
What something’s gonna be worth later on, just pork bellies. You probably hear about those on the radio , that’s a future you’re talking about. It’s today, it’s January and I’m gonna guess what pork bellies are gonna be worth per pound in August. So you buy an August future.
This works well.
This is a lot of the commodities are this way. Farmers ba base their lives on futures, so
and so they’re basically doing the same thing on this website, but the way that they’re doing the futures are based on each state’s forward looking. How the real estate market’s gonna do there. Okay. And the federal government, through Fannie Mae puts out a, something called the hpi, the housing Price Index.
They do that quarterly. And what this company has done is they’ve created a future for every state, and then also a future, I believe, for six or seven regions in the country. And then a national future too. And basically what they’re doing is you trade. Based on what you think is gonna happen to the market in a particular state.
And the reason I think this is interesting is it gives you the opportunity to trade without having to get into the hands on stuff as far as investing in real estate. But if you live in Arkansas and you think the market is gonna get hot and say Alaska. Then it never gets hot in Alaska. Yeah, that’s fine.
You don’t have to go out to Alaska and go buy a rental property and figure out all the stuff that has to go on there. If you think the market’s gonna get better in that area in the next three months or something, you can go and buy a future on that state. And if it does well then you know, you can do well.
But the other thing too is I’ve talked to a lot of people. And they talk about the impending bubble burst or whatever. I keep, First of all, I don’t really believe that, but I keep telling ’em, put their money where their mouth is, and this is a perfect opportunity. If you think Florida’s gonna tank in the next three months, you think California, the real estate market’s gonna fall into the ocean, just like California’s gonna fall into the ocean every year for the last 20 years.
Then you can go and do a short on it basically, that says, I think instead of. Housing price index going up, it’s gonna go down and I’m gonna sell that future instead of buy it. So if it goes down, you make money instead. That’s the short version of how that works, right? So it allows you to participate in a broad market in either way.
And maybe it’s something that people are a little more familiar with than having to rehab a house. That’s an idea. Something you can try out. It’s I N R E X dot. Again, like I said, I don’t under, I don’t know the group. I just know what I’ve read there. So before you go and invest any money anywhere, I recommend doing your due diligence no matter what it is.
Absolutely. And find out a little bit more. But it’s a great way to, to get involved. And the other thing it does too, is they have a spot on the site where you can sign up for what we call a paper trade. It’s just a free spot where you can pretend to trade. Okay. And see how you would do.
It’s not real money, you’re just kind. Yeah. You’re putting your. Feelings out there. You’re what? What you’re predicting. You’re putting your predictions out there, but you’re not investing real money. It’s just a practice run. It’s, yeah, it’s exactly a practice where you don’t have the risk of losing your money.
But you get an idea of how to do it without having to lose any money. Okay. And the other thing they have on the site is they’ve got a tab. If you go to that website that says Educat. And they’ve collected news stories from each of the states. So you can go and get a quote on what the future is for the state, but you can also see all the news stories there.
Okay. Just if you wanted to, if you went to a finance website and you typed in GE for sticker symbol, right? You get all the news stories from General Electric. Okay. This gives you housing stories from each of the states. So it’s a great location just to go and find out information about what’s going on in the housing market in that state, and it might be the state you live in.
All right. See, so it’s a good aggregator of information and I hope in the future they really move forward in that and do even more stuff with gathering news stories about housing in each of those states. That would be great for investors.
And now you said that it also does seven different regions of the country.
So maybe think. You think? Yeah. So it could be like the south or the northeast stored more general areas. Yeah. Six or seven states big or whatever it southeast, that kind of thing. Got it. Yep. Okay. Yeah, so I think that sounds something to check out, right? So again, that’s I N R E x.com or again, just go through our website, get real rei.com.
I’ll have it on the show notes. And over on the right side where it says links, I’ll have a link to it over there too. And, We’ll see if we get the, There’s a couple gentlemen that run the business and we’ll see if we can get one of them on to explain it a little bit more in depth in the future. Okay.
Sounds good. Now let’s move on to something, a completely different topic. Like I said, we’re gonna touch on things today. Something that gets to be very important when you’re looking at properties and figuring out if it’s a deal, is figuring out how much the house is actually worth, and also figuring out what the loan, how much of a loan you can get on the property, right?
So the first thing you have to know is, especially if you’re looking at rehabs, and this is really focused in on if you’re looking at rehab properties, I think we’re focusing on looking at rehabs and probably. If you’re gonna finance it with hard money, but this will work even if you don’t finance it with hard money, right?
Because in a lot of cases, you don’t wanna have to, you don’t wanna get into it for more than the 70% anyway. And the 70% refers to a r v. Or after repaired value, because that’s what the banks, the hard money lenders, mortgage companies, they’re all gonna look at what is that house gonna be worth once it’s fixed up?
Because if it’s trashed right now, it’s worth less, obviously. But what is it gonna be worth when it’s fixed up? And that’s what the, that’s where it all starts from. And I think it’s probably the hardest number too, to come up with, right? You need to know what it’s gonna be worth later. There’s a few ways to do this, The.
Number one way you’re gonna do it when you’re financing a property is you’re gonna have a qualified opinion from an appraiser, right? And they’re gonna come in and give you an appraisal, but even that appraisers can be off by a little bit too. So the only way that you can really get a real good idea of what a property’s gonna be worth, and sorry to say it.
You’re gonna do your homework and do and put some time in and really get to know an area. We, what we do is we go out to websites like Zillow that you can go and look at and see what properties have sold for recently in an area or your realtor. Like we suggest you always have a good realtor on your team.
They can pull comparable sales in that area. But comparables only so comparable. You really need to know the neighborhood just because it’s a three bedroom, two bath, 1600 square foot home. There’s a lot of different conditions of those homes, and you need to know the last home that’s sold, if it’s gonna be comparable to your home, right?
Once it’s fixed up. That’s the important part. After repair value is after it’s been repaired, right? So whatever, you’re gonna fix it up like you want to find other houses in the neighborhood that are fixed up to that. And that’ll give you a better idea of what they’re gonna sell for, right? Cause if you’re looking at the recent home sales in that area, there might be three or four in that neighborhood that are trashed out.
So the numbers, those are gonna have lower sale prices, right? Then the fixed up ones. And that’s sometimes where appraisers don’t do their homework. You can say it, maybe don’t do their homework. But that’s how you can also work the appraiser is to get them to understand that house was one that was also trashed out.
So you have to be on top of what they’re using as their comparable sales. All right. So that’s your after repair value and. , That’s what if you were gonna sell at retail. Once it’s done, that’s what you’re selling it for. Now, what you wanna do is a lot of hard money lenders, and we’re just gonna use this number for example they’ll give you 70% of the after repaired value.
Some will give you 60%, some will give you 80%. It just depends. So you need to know what you’re gonna get your loan for and whatever that percentage is, get that figured out, right? That what that number’s gonna tell you is all. What you got money wise to put into that property, right? And what they’re gonna give you.
You need to figure out then your repair costs, your closing costs, your holding costs, and all of that, because that’s gotta come out. , Sorry. You don’t really need to get your holding costs. All right. Okay. Because a lender, they’re, most rehab lenders are not gonna give you money for your holding costs.
But what they will give you money for is your repair costs. So you wanna have a couple decent contractors that can help you out and give you an idea of what the repairs are gonna be before you go and buy the house. You wanna know that, and then also, like Glen said, your closing. And your closing cost.
If it’s a traditional loan, that’s gonna include things like the appraisal. Your attorney, if you’re in a state that does attorney closings or title company, your company fees, your title company state. Your tax, your prepaid tax, your taxes, anything that would go into an on a normal HUD one form is gonna be part of your closing cost.
But now also especially if you’re gonna use a hard money lender, they’re gonna charge you points. And that’s gonna be a part of, there’s a big chunk there. And we’ve seen hard money lenders charge anywhere from two to six points, and that a lot of that is based on your credit and the property.
And they, they have all kinds of different factors that they look at. But if you figure it’s an after repaired value of a hundred thousand dollars six points on. That’s a big chunk of money. So you need to know, and you need to factor that in when you’re looking at the house to figure out if it’s a deal and to figure out what to make your offer for, right?
So once you subtract all three of those out of there, the closing costs, which include the points or the closing costs, the points and the repairs, when you subtract that off your arv, that’ll tell you what you can afford to buy the house for, at least that’ll tell you what you can get it financed for.
Now, if it’s a really good. Then you want to come outta pocket some money on it, Whatever the shortfall is between that number we just came up with and what you can really buy it for. You gotta make it up, right? So if you’re gonna pay the points yourself outta pocket, you can do that. A lot of people will tell you don’t ever do any more than 70%.
It depends on what you’re doing, I think. I think if you’re doing a hundred thousand dollars house, I’d have to agree with that. I think if you’re doing $800,000 house, Then it depends what you want. It, 70%, that would be great. But if you can make $60,000 on it, that’s a lot less than being in a 70% year of what, 85, 90% at that point in time.
So it, it’s investing sometimes is using your own money. It’s about the numbers too, but on when you get to those bigger properties when you’re talking about coming out of pocket. If it’s bigger repairs, it’s bigger dollar amounts on a bigger property too. So you’re gonna have to weigh it for yourself.
Like ju said, keep in mind if you’re gonna end up making 50 or 60 grand off of it and you have to come out of pocket like six or seven grand, I think it might be probably worth it to you to come out of pocket that six or seven grand when you’ve got that bigger payday. As soon as you saw that house.
So go ahead. Okay. that, then the, that’ll tell you what you could purchase it for. The other thing you wanna probably try to figure out is what your net proceeds are gonna be. That means if you’re gonna, if you’re gonna retail this house, if you’re gonna rent, it’s a different story. But if you’re gonna retail this house, you might like to know upfront what you’re gonna get out of it when you sell it, so you know what you can buy it for.
Now, you’ve backed all that stuff out. Those are your cost. You also want to, like Lynn, Adding your closing costs. Or, sorry, you’re holding costs and the other thing I would also add in is any marketing costs, whether you’re gonna sell it through a realtor or you’re gonna sell it on your own, you’re definitely gonna have marketing costs involved.
So you wanna subtract that out, right? If you take that minus your loan, That’ll give you a pretty good idea of what you’re gonna make on the deal. So let’s just go through some numbers, put some numbers in here so that we can get some visuals on this. Can we use a hundred grand? Yeah, I don’t have a capture.
We’ll start with a hundred grand. Okay. Because that’s a nice round number and we usually can work backwards from there. And we haven’t written this down, so if we are off a couple grand, we apologize, but let’s start with a hundred. That’s what your after repaired value is gonna is on this house.
Okay? You figured that out. That’s what the appraiser says. Everybody agrees. Okay? Now your hard money lender is gonna give you 70% of that, so that’d be $60,000. No. You don’t need a calculator for that. That’d be 70 grand. that 70 grand is everything soup to nuts. So that’s gotta include the price of the house, the repair costs, and your closing costs, right?
So if you know that it’s gonna co, if your contractor tells you that it’s gonna be, let’s just make this easy, 20 grand to repair it, okay? And your closing costs are $5,000. That’s your points, your taxe. Your transfer, your legal, all that. Okay to cover everything. Where are we at 20. 25. Okay. 20 plus five.
All right, so we started at 70, we had 20 in repairs. Now we’re down to 50. Then we gotta take off the five fi five grand for the closing cost, right? The most that the bank is gonna give you for the purchase price of the house is 45 grand. Now, should that be your first offer to the listing agent or to the homeowner?
Probably not, because you’re gonna wanna have some negotiating. So I would back off from there, probably say I’d offer ’em 40 Grand Lynnwood. I offer ’em 20. Yeah. And I apologize a whole bunch, but I still offer ’em 20 . We have different philosophies on that and we argue about that, but that’s one of our That’s one of our deals.
So Judd would offer 20 and then work his way up from there. I would offer 40 and get, probably get my offer accepted and then be mad because I knew I didn’t go low enough. So you bought the, say they agree to 40, so you’ve bought the house for 40. You’ve got 20 grand in repairs, so now you’re at 60.
You had to pay your closing costs, so you’re at 65, but you know that this house has an after repaired value of a hundred grand, but it’s gonna take you six months to get it rehabbed and ready to sell. Right now you’ve got your holding costs of, let’s say $400 a month. Let’s say 560, that’d be a good deal.
Okay. What would my holding cost be? Depending on the hard you, you got hard money, you gotta be probably up around 6, 6 50 or something like that. Okay. Because the holding, because the hard money loan is gonna probably be at 10% interest rate. If you do well, if you do well, 10%. So we borrowed 40 and we got our 20.
A grand in repair. So we’re 60 grand at 10% interest. That’s six or five grand for, so that’s say 600, $650 a month. For holding costs. You’re gonna have to subtract that off of, or add that to what all you’ve got into it. And then from that number, say, 75 grand, then you know that you can sell it for a hundred.
There’s your profit, there’s your margin, your 25 grand. , but you’ve gotta figure out, you gotta know for yourself what it’s gonna be worth. You gotta have your good starting points. What’s the arv? What’s the repair cost? What’s my closing cost? Yeah. My, my personal feeling is always know that going in, don’t go into a deal and then see what you can get out of it later.
Know what it is going in. We always recommend that you have a number in mind that you wanna make on a property. A hundred thousand dollars property, Say you wanna make 25. Don’t go in and hope you’re gonna make 25 grand. Do all the numbers and only buy the ones that you can get a $25,000 profit on.
And maybe if you do enough of these deals you are willing to be a little bit skinnier on your deals. So a 15 grand profit is alright by you? Then you can work your deals a little different. But it’s been our experience that the repair costs are always higher. The holding time is always longer and the sale price is always lower, and the sale price is always lower than what you anticipate.
So you’ll need to factor that in too. . Yeah. And those deals where you think you’re gonna make 15 and you make eight and you’re grateful. Maybe it wasn’t quite the deal that you thought it was gonna be. Yeah. So anyways, those numbers. I’m gonna put in an Excel spreadsheet under the links on the website.
Again, get real show, sorry. Get real rei.com and you can pick up the Excel spreadsheet there if you’d like. So you don’t have to do the math yourself. What I do with the properties is I always add another tab on the spreadsheet for each property that I’ve analyzed. So I’ve always got up there, and the reason is somebody might call back two, three months after you’ve talked to ’em about buying a house and you don’t remember anything about it.
You can go back to the spreadsheet, find the tab on there and say, Oh yeah, that was. I was gonna offer you 40 grand at the time, and so some time has passed and you’ve thought about it. So I’m offer you six grand now. . I’m just kidding. But I always offer less than I did the first time they come back again there.
There was, their situation has changed and they’re a little bit more receptive at that point. And usually my situation has changed too, and I have less cash available and Right. Don’t need it as much. Usually those calls come in when you’ve just signed on three new properties. And it’s I can’t really take on this one right now, so I might wholesale it to somebody else.
So that’s when the best deals come, is when you really don’t feel like you need another deal. That’s when the best work comes when you’ve got way too much on your plate already. Exactly. That’s good. That works that way sometimes. Okay, so go out there to the website and you grab that spreadsheet if you’d like, and we’ll put an explanation in there too of how that works.
And get that information. Hopefully that’ll help you out. Knowing your numbers going in is always gonna make it less stressful when you decide what to offer on a house. So the other thing we wanted to talk about today too is, I guess more education. If you think that’s helpful.
There’s a place you can go where you can get a whole bunch more information than what we’ve got to provide for you for that. And that’s your local Real Estate Investors Association. You’ll hear people call that RS R eia for sure. Real Estate Investors Association. Most major cities and a whole bunch of small cities have at least one, if not more real estate investor associations.
It’s just a great place to go to find a whole bunch of other people. That are doing what you wanna do. And I personally think the best way to learn how to do it is find somebody that’s successful that’s already doing something and just learn what you can from them. Reach on to ’em. That’s right. And there’s also gonna be a whole bunch of vendors at these places.
So you’ll get to meet some mortgage lenders, some hard money lenders. Couple here, there, contractors, will be there. But it’s just a great network and educational place to, to get to know people and really get to know your market from them too. You can also find deals in the room because there are plenty of people that are in that situation, like we just talked about, where they just signed on to take on three new properties and that person that they talked to three months ago calls ’em back.
Maybe they can’t handle that deal, but they’re willing to pass it on to you with them taking a couple of grand as a markup. As a finder’s fee, and then you can still step in and take on the deal yourself. Yeah. So it’s a great way to find. Other people doing what you do, what you wanna do.
It’s a great source of information. It, you can find deals there. It’s a good thing. And you meet new friends too. You sure do. The easiest way I think if you’re in the United States to find a group is go to www dot. N A R E I A do. I’m sorry, that’s not it. That’s a porn site. Go to I, I made that mistake at one point.
If it’s still up, go to national R e i a.com and that’s the National R. There’s a whole network of real estate associations out there that are a part of the national area, and they’re gonna have a spot on their website that has all their affiliates, and that’ll give you in your. All the Rs that are affiliated with them, right?
These Rs are usually nonprofit rs. There’s two types of real estate investors associations. There’s nonprofit and for profit. I don’t know if it makes that big of a difference to anybody, but. Basically nonprofits are there, They have a board that sits on it, that is a volunteer board, and all they get out of it is a sense of doing well to help out other investors and maybe get to promote their business a little bit.
That would be a nonprofit. All the money goes back into it. A lot of ’em use it for educational purposes to bring SP speakers in that they have to pay for and other things. Books. I’ve seen some groups that have libraries of books that you can check out about real estate investing. The other type is for profit.
It’s an individual in an area, sees a need for a R, and they started up, Usually they’re the ones in charge. They might have a board too, but they’re gonna have the final say, and any of the proceeds that come from that, a lot of times go back into the r. They, I’m not saying this like they’re somebody that’s out there making a million dollars on it, but it might be a for profit where a certain part of the reason they’re doing it is they’re trading their time for money.
They’re drawing a salary. They could be drawn a salary off of, Yeah. Off of doing that. I’m not trying to make it sound nefarious. They’re not there trying to take anything from anybody. That’s why I’m saying I don’t know if it matters. But there are two different types out there. So you can be aware of that when you go to look for a group.
But go to national r.com and R EIA and they’ll be happy to help you out and find a group in your area. And I’m, I’d say most groups meet once a month. Definitely go there. They might charge you 10, $15 to visit and a lot of ’em charge you maybe $90 for a hundred dollars for a whole year. Of membership.
Of membership. And you usually get a whole bunch out of. Between getting to go to the rest of the meetings for the year for. They a lot of time have weekend seminars that you can go to either for free or at a very discounted rate. Rate. Our aria here, we either have ’em for free or for $29 for an eight day eight day
Eight hour, eight hour seminar. You can’t get better education out there for that. No. You got. People that come in from around the country to speak and you can hear their area of expertise and they’re more than happy to talk with you during the breaks and really give you information. And then you can also talk to other people there because a lot of people don’t believe what this person’s saying.
And you can say, Have you ever tried this? And you can find out what works and what doesn’t work, right? Because different things work in different areas to different levels, right? I think everything will work. It’s just how. How successful it is depends on the area that you’re in or how hard you work at it or how hard you work at it.
Certainly that seems to be the case too. Absolutely. So national r.com, and they can get you set up, you can do a Google search maybe in your area, but I know National R is a little bit more pinpointed and they’ll have their contact information there. And Judd will put the link for the national r, not the porn site.
