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1. The Money
- 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.
- 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.
- 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.
- 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.
- Take the number you come up with and share it with the deal finder so they’ll know what to look for.
- Know the minimum payment due on your credit cards and ask for credit line increases every 6-months.
2. Find the Deal
- Prove Credibility: Prove to deal finders and agents that you are credible by showing documentation via your credibility package that you qualify for funding.
- Make sure to have your documentation stored electronically.
- 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.
- Sell the deal finders in working with you. Develop any sales skills that’s needed.
- 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.
- When reaching out to deal finders, select deal finders that specialize in deals based upon the types of mortgages you qualify for.
- Network to find a buy and hold investor and ask about their 3Ms. You can review and use the script here.
3. The Model
- 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.
- 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.
- Improve the value using Force Appreciation:
- Increase the rents or add any other type of revenue
- Decrease expenses
- 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
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