MIT 3.0: 2.1 Find the Deal Part 1

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MIT 3.0
2.1 Find the Deal – Part 1
Cheat Sheet

1. The Money
  1. As a refresher, find the money before finding the deal. The money includes: down payment, mortgage, closing costs, soft costs, reserves, and any Seller Financing.
  2. If using business credit that has been converted to cash, make sure the funds are seasoned for a minimum of 2 months in your bank account. This should not be disclosed to the lender or it may prevent you from closing on your deal. 
  3. In order to know what type of property you qualify for, complete this formula: Divide the total amount of out of pocket funds by .3, or by .2 if using Seller Financing to determine the purchase price. Ex: if you have $40,000 / .3 = $133.333. This could qualify you for a property valued at $130,000.
  4. Take that number and divide it by $30,000 per unit door to get the size of the property you qualify for. Ex: $130,000 / $30,000 = 4.33. This means you qualify for a 4-unit property.
  5. Take the number you come up with and share it with the deal finder so they’ll know what to look for. 
  6. Know the minimum payment due on your credit cards and ask for credit line increases every 6-months.
2. Find the Deal
  1. Prove Credibility: Prove to deal finders and agents that you are credible by showing documentation via your credibility package that you qualify for funding.
  2. Make sure to have your documentation stored electronically.
  3. Reach out to deal finders, and when you do reach out to them, be mindful that it’s a numbers game. Reach out to as many deal finders that you have to. Don’t stop at 5, continue to reach out to 20 deal finders if that’s what it takes.
  4. Sell the deal finders in working with you. Develop any sales skills that’s needed.
  5. It may take looking at 100 deals before finding the right one that has cash flow, that has  built in equity, that offers a return, and that the seller will accept your offer. 
  6. When reaching out to deal finders, select deal finders that specialize in deals based upon the types of mortgages you qualify for. 
  7. Network to find a buy and hold investor and ask about their 3Ms. You can review and use the script here.
3. The Model
  1. Practice analyzing deals using deals found on Loopnet.com or on the Deal Presentation webpage in conjunction with the Deal Analyzer available in the Sharehub.
  2. When determining your model, look for properties that cash flow at $100 per unit; also, properties that have a cash on cash return of 10% (you can settle for at least 8%), and that the value of the property can be improved.
    • To improve the value with Natural Appreciation: 
    • Buy the property in a natural appreciating market
    • Access the Real Estate Terms to Know resource.
    • Use NeighborhoodScout.com for comprehensive reports covering exclusive real estate trends & forecasts, crime data, real estate investment index, demographic trends, job access, school ratings, and appreciation growth rate.
  3. Improve the value using Force Appreciation: 
    • Increase the rents or add any other type of revenue
    • Decrease expenses 
  4. Buy the property with built-in equity
    • Buy the property less than what it’s worth
    • We recommend you start negotiating with a purchase price 20% below the seller’s asking price but settle for no less than 5% built-in equity

 “If you’d like to learn more, click here”

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