As with every type of real estate deal that’s ever been put together by a successful real estate investor, the answer to this question will be found in the deals “NUMBERS”!
Real Estate investing is a numbers-driven business! PERIOD! The number 1 Cardinal Sin in real estate investing is “Falling in Love with the Real Estate that Your Thinking About Putting Under Contract!” What a property “looks like” has NOTHING to do with whether or not it’s going to make you any investment money!
Every real estate deal is really no more than a mathematical equation. Nothing more, nothing less. If the numbers do not add up to profits and positive cash flow, then the deal is NO GOOD! PERIOD! End of DEAL! DON’T DO THAT DEAL!!!!!!!! It’s really very, very simple to figure out which deals are good and which deals will harm you as an investor. And it all boils down to how well the investor can calculate the numbers on the “Deal Formula Spreadsheets”
Each type of real estate deal has its very own spreadsheet formula! Each of the following types of deal has a specific deal spreadsheet that will determine a good from a bad deal:
* Buy-Fix Rental
* Wholesale Deal
* Lease Option (rent to own)
Once an investor master plugging ALL of the correct spreadsheet VARIABLES into the Deal Formula Spreadsheets the margin for selecting a “Bad Deal” will be greatly diminished if not eliminated altogether!
Wholesalers have a very specific Deal Spreadsheet Formula that works on every deal that we analyze. Taking into consideration that most of my wholesale buyers (Investor Buyers) will be financing their deal using a Hard Money Lender, I will use the following formula to figure out my purchase offer:
Note: Home has a $ 100,000.00 (FMV)
Note: Hard Money Lender will lend up to 70% LTV (Loan to Value)
Note: Repairs will cost $10,000.00
Note: closing costs will cost $6,000.00
Note: My minimum net profit is $ 7,500.00
***Fair Market Value (FMV) X 70% = $70,000.00 (max. loan amount)
+$70,000.00 (max loan)
-$ 10,000.00 (Repairs)
-$6,000.00 (Closing Costs)
-$7,500.00 (My Net Profit)
= $46,500.00 (My Max. Offer to the Seller)
My SAFE offer to the seller will be $ 46,500.00. If this offer is accepted by my seller I will make $ 7,500.00 when I wholesale this deal to my investor for $54,000.00
$46,500.00 (my offer to seller) + $7,500.00 (My profit on the deal)
= $54,000.00 (Wholesale Price that my buyer pays me for the property)
Using this formula my Buyer is going to be able to borrow 100% of the money needed for his:
* Purchase price
* Repair Costs
*All Closing Costs
+$54,000.00 (My Buyers Purchase Price)
+$10,000.00 (All Repairs Money)
+$6,000.00 (All Closing Costs)
=$70,000.00 (Max loan from the Hard Money Lender)
Total time invested in this typical wholesale deal averages just 2 hours per deal! $ 7,500.00 in just two HOURS! Not a bad hourly wage wouldn’t you say!
Blow the Spreadsheet Formulas and you could end up losing your cookies! Not using them at all is next to real estate investing financial suicide for the new and experienced investor alike!
Use your Deal Formula Spreadsheets and always remember this: “The Numbers Don’t Lie!”