So, you built the team. You have Investor friendly Agents, Attorney(s), Lenders, etc and you’re ready to find properties. Here’s the thing, this is where a lot of newbies get in trouble. Just because you have a lender or two, you may have bought properties with very little of your very own money. How are you going to pay the interest payments each month until the house sells?
What, you ask? Interest payments? That’s correct. Hard Money Lenders (HML) charge you interest on their money. You are responsible for paying the monthly interest payments. So, if your HML is charging 12% APR, take the total amount borrowed, multiply by the 12% for the year and divide by 12 months to get the monthly interest payment. You need to have the ability to make those monthly payments or you run the risk of going into default.
Ok, let’s get back on track. Finding a house is an art. When you think you found it, your due diligence should include determining your MAO (Max Allowable Offer). Run the comps around the property, within a quarter mile, (all solds, all deposits taken, all continue to show and actives) and look at the average sold price within the last 6 months. That is your ceiling for selling your house BUT I recommend advertising it just below that number. Here’s why. I’d rather have all the surrounding homes making mine look better than the other way around. Makes for a really fast sell.. time is the enemy.
Take your resale number, subtract holding costs for the number of months you think it’ll take to sell- typically 6-9 months, subtract your profit dollars you wish to make and you now have your MAO. When making offers, never exceed this number. New investors are less disciplined and have made offers higher than their MAO which makes the resale very difficult because you’ll be over priced.
Getting your offer accepted can be tough because there are so many out there that think they are “flippers”. In fact, we hate the name “Flipper” because it includes the fly by night guy who goes in with a can of paint and lipstick and calls it a flip. Not the quality level we want to be associated with. So, rejections are normal and often..don’t panic. We had 4 months worth of rejections and then all hell broke loose and we got 5 properties at once. Rejections are the reason newbies over pay. They panic and want any offer versus the right offer, any property over the right property. Don’t be that guy.
To be continued: