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Episode 053 - STRR - The 7 Rules of Purchasing

acquisitions Jul 16, 2021


Find out the Seven Rules of Purchasing a Short Term Rental and why NOW is becoming the best time in a LONG TIME to buy and hold properties for your Short Term Rentals These tips will save you thousands and set you up for success!  Don't miss this episode because NOW is the time to start picking up on some really great deals in the Short Term Rental industry. 


Transcript of this Episode:

Hi, this is Michelle, the master of money mindset, and you are listening to BNB dash boss podcast.

I'm Lee I'm giggling because I'm knocking everything off of my desk today. It's crazy around here. There are boxes everywhere. Moving is going on. Moving in movie. Now it's updating everything and it looks like a war zone in here. I don't think we're getting this back for a while. Right now. I mean, there's just so much to knock down.

So if you hear any crashing, banging, just giggle and laugh and go, what the heck I want to see what's going on. I'll never show you. I'll never show you not true while I'm redoing my backyard for my husband. We bought this house about a year ago, right? At the beginning of coronavirus, we moved in our gift from our realtor was toilet paper because it was such a crazy, crazy time.

That was when everybody was out. But when we moved in here, this house has a great backyard, a really big backyard, but there is nothing in it, but a bunch of random trees and the worst kind of trees that you can have in Arizona, the ones that make a big, huge mess. So you don't want to put a pool back there next to these shrews.

It would just be a mess all the time. So anyways, we're building this awesome backyard for my husband. And he deserves it. He's a great guy. He's a doctor and he works six days a week. He is a workaholic. I'm a workaholic, he's a workaholic. We're constantly doing stuff, but we're making a man cave back there.

Just some really cool stuff. But then as we have all this mess in the backyard and we had our daughter move in, she's almost 30. And she moved back from Washington state and moved back here. She'll be going back, I think to Washington soon, but she just wanted to kind of get her stuff together, but she's all her stuff was in.

And we moved that stuff over. And then our other son moved back in and it's like, we'd downsized in this house a week, a downsize. And now we've got four kids living with us again. Heck what is, this is wrong? We had a really big house before with lots of bedrooms and lots of space. And now we have a much smaller house.

We have not a lot of space and everybody is moving everything all around. I kept my office and my studio is now gone. My studio and my office are now in the same room, but we will stretch out and breathe when everybody moves back and gets their lives all back in shape and, and goes back out on their own.

And we get the backyard done and man caves put together and hoo boy. But until then it is a crazy wild place. And there are nothing but boxes everywhere. So it was a lot of fun, a little crazy for my OCD. Cause boy, I'll tell you, I, I, you know, you just want to organize and get stuff cleaned. And none of this stuff is yours.

You can't touch other people's stuff. You're like, oh, I'm gonna move this. And then, you know, your kids will freak out. Mom, why did you move that? I knew exactly where it was. So I know better after many, many years with five children, I know better. So today we are doing a short-term rental revenue replay.

And we're doing the seven rules of purchasing. We're kind of keeping with that purchasing theme. We just finished the ABC's of acquisitions. What's really cool is what's coming up, our negotiations with Maria, and then we're going to have negotiations for landlords, with me and helping you build your credibility kit.

And we're going to just really, really focus on getting you a property. Okay. So that by this fall, you're putting this stuff into play. And actually for somebody in an area like us in our Florida properties, we are already at peak season, right. We are in the full throttles of summer and everybody's singing summertime, summertime, summer, summer, summertime.

Right. And then here in Arizona, holy cow, it is hotter than, you know what, it's a little bit slower. I mean, our properties still have guests in there and that's good, but they got really great rates because it's hot. It's hot in Arizona and we're going into the fall. As we go into the fall here. This is the best time of year.

This is the best time of year to pick up these properties right now. Like it's hot. Nobody wants to move in, move out. So landlords are having a really hard time. If they have an empty property moving, then nobody wants to move in July and August in Arizona. It's too hot to move. And so you can get really great deals, then have them all designed and filled and ready to go by the fall.

And that's when our peak season is in Arizona. So that's another reason why I invest in those two states is because one peak season is the other one's slow season. And one slow season is the other one's peak season. And so when it hits peak season here in Arizona, I had back out to Florida and I stay up by properties in Florida that are empty.

It's a lot of fun. So let's go into the seven rules for purchasing, and I'm going to listen in and see if I can add anything to them for you. And then you'll go on and have a great weekend. And then we'll come back and remember, at the end of this month, we've got Maria on the 19th and me on the 26th, doing our negotiations and helping you negotiate.

So with all this negotiation stuff and the ABCs of acquisitions and all the things that we're focusing on, you will absolutely be able to pick up a property. You will have no problems, no problems doing that. So let's take a listen to these seven rules and I'll pipe in at the end enjoy. And in today's podcast, we're going to be talking about numbers, numbers, numbers, all the numbers it takes to buy, buy, buy, because right now everything is on sale.

It is the best time, the best time in a long time to pick up some properties. There are people freaking the F. And they're just selling everything. They can you go into the Facebook groups with short-term rentals in there, people selling their leases, trying to sublet places, trying to sell their real estate properties, trying to sell her furniture.

Like it's crazy. This is it. They're dropping it. You're going to be picking it up honestly, best time. Best time. What did Warren buffet say? He said when people are greedy be fearful and when people are fearful, be. Well, I don't believe in being greedy, but I definitely do believe in picking up a bunch of opportunities.

It's like a big white sale at the beginning of the year. You're like, woo, let's go shopping. This is the time to go shop and baby. So we're going to be talking numbers right now is such a great time. People are freaking out, and this is the time that you want to grab some opportunities. Now don't just buy to buy.

You want to have a plan? Okay. So when people are selling everything and they're fearful, you should be able to get some really great deals. The price of real estate is probably going to start dropping, but remember, as long as you're cash flowing, these properties. You should be able to make money. And when you're buying them, you're buying them based on long-term rental prices, not short-term right.

But then you can turn them into short term once you get them and make a lot of extra money, but you want to make sure in case the shit hits the fan again. And we have to go into the long-term that we can be making money even with long-term prices. And right now we're buying with a discount on those long-term prices.

So for instance, let's say in an area the rents are going for a thousand dollars a month. We're actually looking like what would happen if that price were to drop 10% or even 20%. So what if instead of a thousand dollars a month, we could only pull in $800 a month. So we're being really, really concise.

about the money that we would be pulling in on long-term rent. We're just low, low, low balling these prices because hell we don't know, we don't know what's going to happen Dewey, and they know something is happening now. So they've got them discounted and we know could get worse or could get better. Who knows?

So just in case it gets worse. We want to make sure that we can cover our assets, right. That's what we're doing. So we're going to talk today about some of the ways that we buy properties and the way that we run numbers. I want to preface this with the facts, that number one, this is just how we do it.

It's just a suggestion. I mean, you don't have to take our suggestion. It's not like our area is the best area. We're doing it in our area. It may not work in your area. You might be in a really great area where the prices are staying stable, or you might be in a worse off area where the prices are dropping lower and you can be even more aggressive.

The thing is real estate is one of those things that when you invest in it, it's very subjective. Everything is different. Every property is unique. Every offer is unique. Everything is unique about it. And by all means, there's a lot of guys out there who are multi multi-millionaires teaching people how to do things, but I'm going to tell you right now that it's not a cookie cutter world.

It feels like it should be, but it's not. And every time you go out there, every situation is going to be. There are things that you can do in real estate that are very cookie cutter. You know, your marketing can be very cookie cutter. I mean, you can, you can do some things over and over again, but your results are going to be very different.

Robert Kiyosaki used to say, look, you can't do things exactly the way I did them because you're not going to get the deals presented to you in the very exact same manner. It's the same with anyone, people and their situations are unique and your situations, and you are unique as well. So every house you find is going to be different than every house I find, even if they're the same sort of condition, even if they're the same sort of price, what I buy my properties for and what you buy your properties for are going to be very different things.

And it can be good or it can be bad. I can get a bad deal. You can get a bad deal. It doesn't really matter, but there's so. That these are just guidelines that we use last week, I talked about the burn method. That's such a great method and it works for the most part in our market, but not always. So I want you to just remember one thing, make your money on the buy.

And that is consistent. That means that you need to get every single property you buy for the lowest possible price. Now we had Chris on the show and she was talking about her dad. Her dad will overpay for properties a lot because he likes buying real estate and it drives Chris crazy because she's a total numbers gal.

And the thing is he is a wealthy millionaire, multimillionaire. And so he can do that. You and I. We'd have millions sitting in our pocket that we can just go and blow, right? So we want to get the best deals we possibly can. So I want you to remember you make your money on the buy. You never buy a property, hoping that it's going to go up in value.

Most likely it is, but not always. You don't know what's going to happen. There could be a pandemic or something, right. Things that we never foresee happening when those things happen. If you buy it for the right price, you're not gonna be stuck. One of my favorite teachers when I was in rich, dad was dolt DeRousse.

He was a little guy from New Zealand. Absolutely loved him, white hair and Dolph bought a house a day using somebody else's money for an entire year, one house every single day for an entire year. And actually I think he bought more than 365 that year, but he always used other people's money and he always got the best deals and guests.

He never sold a property in that whole time, all his properties, he was accumulating. He was accumulating them for cashflow and to build up his wealth reserve. Now, there are people who buy to hold people who buy to flip people who buy to fix and flip people who buy to turn into short-term rentals. Right?

You have to have a plan, but each property, when you look at it is going to have a unique outcome just for that property specific for that property. So you might take a look at it. And get a really good deal on it, but it's not in a good area to do a short-term rental on, but it's in a fantastic area for a long-term rental.

So it might be a buy and hold situation, but a hold for long-term rentals, you'll be able to know you will start to get so good at your property. Buying that when somebody presents you with a deal, you'll say, you know what? This is not a place I would like to hold a property at all. This is definitely a flip, but can I fix it up and flip it and make some money off of it?

If I can't, then I'm just going to wholesale it to somebody else and pass off this deal to someone else. So each property is unique. You just have to start doing it. And that's the hardest part I think for anyone is they, they love listening to real estate. They love reading books about real estate. They love watching shows about real estate, but doing real estate, that's a scary situation.

I don't know if I want to do that. I could lose a lot of money. I might get phone calls in the middle of the night where I got to fix toilets. I remember people always saying that. And I was like, that is the stupidest thing. All you have to do is call a plumber. If somebody calls you in the middle of the night, cold plumber, there's plumber, they can come and fix a toilet in the middle of the night.

What the hell? Why did they use this? Doesn't make sense to me. But the best thing about real estate is that it builds wealth. If you do it right, and doing it right. Means buying it at the right price. So today we're going to talk about numbers and we're going to use different scenarios. And obviously all of these we've pulled from our repertoire of buying properties.

But like I said, every single situation is unique. Every situation is different. Every single house is unique. Every single house is different. So when you look at a house. That you want to buy for a short term rental, you better make sure it's in a location where there are short term rentals allowed, right?

Number one. And you better make sure that it's in a good location. That's close to whatever you've got going on in your town. If you're in a beach town, you want to be close to the beach, maybe even walking distance or closer than that, you don't want to be too far from the beach. If you've got a theme park that is close to you, you want to be close to that theme park.

You want to have a nice, easy drive, or it's not too complicated where people are going to get lost. If you've got shopping nearby or a hospital or a university, you want to be close to things, right? But not too close to traffic, you might want to be close to airports in some situations and farther away from them in other.

You've got to find out what's unique in the area you're looking at and where are the people looking to stay? And you can do that usually by looking at a map of your city, like just Googling map of your city, right? Your town USA, as they say, and looking for hotels and looking for NS in the area, and you'll see where the people are staying.

Those are usually good BNB property areas, because if people are staying there, that's a good location. That's usually a really good indicator of where they are. It's kind of like, McDonald's remember how McDonald's paid their guys to go out and survey different towns and find out where the best traffic area was, where they could build these.

McDonald's. Guess what burger king and taco bell and all those guys, they didn't have to pay any guys to do that. They would just see where a McDonald's was being built. And then they would say, well, let's build around this area because McDonald's, they knew did the work. So you can let the hotels do the work for you, because they're going to say, here's the area where people are looking to buy.

No one wants to build a hotel in a shitty location, unless they're along a highway, somewhere in the middle of Timbuktu, nowhere, right? You want to use other people's work in order to be able to buy. And if you're looking for a short-term rental, which we are, because this is a short-term rental show, you got to remember that it's gotta be a place that's convenient for people to stay.

What are they looking for? Why are they coming to your town? What are they looking to do when they are there? Figure those things out and you're going to make a lot more money. And that's what you want to do. Now you're going to come across some properties that are not superb for short-term rentals.

They've just might not be in a great area, but they might be good for long-term rentals. And you may think about holding those properties. Those properties are really good. If you did listen to last week show at the beginning of the show, I told you a way to invest and buy a property and then pull all your money back out guys.

That's one of the best ways to use your money wisely, to use other people's money. To help you build wealth. You can use the burn method to do that, and you'll see how over the long-term you're going to build a lot of wealth by buying a property, all cash, fixing it up, putting a renter in there and then refinancing it, pulling all that money back out, and then doing it again and doing it again and doing it again.

If you can get to the point where you're buying a property a month, holy cow. Think about this 12 properties a year that you would be buying and holding and cash flowing. Amazing. Right? You can build up your wealth so easily, but the thing is you have to do it and there you go. I know it would be so nice if you could just think about it or watch a show on HGTV and just think about doing it.

And it sounds good and it looks good. And boy, those California properties are pretty easy. If you've got three, $400,000 sitting in the bank that you can just play with, that's not really feasible for the majority of us. The majority of us don't have three or 400,000 just sitting in the bank, waiting for a shitty property in a good neighborhood to come along that we can fix up and sell.

Right. So we have to use other methods. And I also want you to remember to go back and listen to Maria Giordano's interviews as well because Maria and I talk a lot about negotiating and you've got to be able to negotiate those terms in the beginning, parts of your offer. You've got to negotiate. Well, Maria used to always say, I think she still does that.

If you're not embarrassed by your first offer, it's not low enough. If you're not embarrassed by your first offer, it's not low enough. So every time I make an offer, I think, can I make this offer? And how do I feel about this? I feel pretty good about this. Nope. I need to be in bed. It needs to be so low.

I'm almost embarrassed that I think that they're going to just roll it up in a ball and throw it back at me with a big F-you. That's what I want my, I want my offer to be so low that they're thinking of flipping me the bird when they get the offer. F you lady, you know, if it's not that low, then it's not low enough because I want them to know all the things that are wrong with this property and how I'm going to have to invest a lot of money in to fix it up.

I very, very, very rarely buy a property that's already fixed up and ready to go. Why would I all the money's already been put into that property. I want properties that I can find that need something that needs something done, pains and flooring and carpeting and countertops, and maybe new cabinets and landscaping.

I want things to do. Why? Because I can get it for a low price. Number one, well, under market. And I can put a little bit of money in there and build a lot of equity in that property. So the more equity I have at the end of a sale and fixing up a property, the better. I am looking to have at least 30% equity in that property.

And why am I looking to have at least 30% after I've bought it? After I fixed it up, I want to have at least 30% tell me why you should know why, because the majority of banks or anyone else, they want to have a 70, 30 loan to value. It's an LTV. So they want to make sure that there's equity in that property.

In case I default on it for some reason, unknown to man. So if I default on the loan, they've got equity built in. And how much are they usually looking for? They're looking for 30%. They want 30% equity, which means I want to have 30% equity when all is said and done. So that doesn't mean when I find a property and it's in shitty shape and it's after repaired value, which is an ARV, the after repair value of a property.

Well, let's start doing some scenarios here. Okay. And we're going to use easy peasy numbers, which is going to drive you nuts because you're going to say to yourself, because you haven't done anything yet, right? You're going to say to yourself, holy shit, no houses in my area that are a hundred thousand dollars.

Well then guess what if the majority of prices in your neighborhood are $250,000, take the numbers I'm using and multiply it by 2.5, that will fix it. Okay. So we're going to use easy numbers because we're going to make the math easy for everybody. Okay. So let's get started thinking about these numbers and writing these.

When you go and you're looking for a property, you're looking for a property that needs some work. One of the reasons why is because when the property needs work and the owner knows it needs work, they're not going to price it as high as everyone else, or they shouldn't, if they do the next, okay, next people will constantly send me letters.

I found this property, blah, blah, blah. And they want this much for it. What can I do? And I'm like, next, next, they want too much for it while they're not willing to this. And they're not willing to that. Then next, next, it just frustrates me so much that you guys will find one thing and you'll hold onto it like a dog with a bone.

And it's like, dude, if the numbers don't work next, if the property doesn't work next, if it's not in the right location next. You, you want it to fit into your puzzle so damn bad that you're so afraid to let it go. As if it's the only one out there there's a million properties out there, a million millions and millions of properties out there, and you can find a better property.

There's always another property. Don't get emotionally involved in properties, unless, I mean, you're buying it for your own self and then, you know, it's going to be your home and you want it to be, you know, something in your family forever and ever. And then go ahead and get all emotionally involved. But I'm going to tell you when emotions are high intelligence is low.

When emotions are high, your bank, account's going to open up greater. You're going to pay a lot more for a property. You love. Then you are for a property that will work, that these numbers are working on and you need to think smart when you're buying real estate because you make your money on the buy.

Don't get emotional. If the numbers don't work next. Okay. So I want you to keep in mind next. That's going to be rule number two, rule number one, you make your money on the buy rule. Number two, next numbers don't work. Next location doesn't work next. Anything doesn't work next. We are not emotionally involved at all.

Got it. We stayed disconnected from the properties that is rule number two, keeping all that in mind. What's our third role going to be? I never want you to buy a property. That's already fixed up. I know that's a terrible rule to start with because a lot of you are going to say, well, I don't want to have to do a lot of stuff.

Well, great. Then you better be able to get a damn good price for that property. And it's going to be hard if it's already fixed up and ready to go. So how are you going to find a property that's ready and raring to go with everything looking fancy and free and fantastic. And how are you going to get the owner of that property to give it to you for 70 cents on the dollar?

How are you going to get that owner to give it to you for 70 cents on the dollar? You're not, you're not, and you got to go even less because after closing costs and everything else, right? You're not. So you need to look for property is rule. Number three is you need to look for properties that need some work.

You have to find and properties that need work. You have to find the deals and the deals are always in the properties that need some work, because that's where the negotiation is, right? It's like a new car. Think of it like a new car. So when you are looking for a car to drive, you say, okay, I want a Toyota.

I want a Prius. I want a Prius V you've picked out the car, the make the model that you want to buy. And once you've got that down, here's all the inventory you've got for what you want. So we're doing this same thing with our houses. We want a short-term rental in this area, so we've narrowed it down, but where are we going to find the deals?

Every dealer is going to sell a brand new Toyota at the same price or around the same price when it's got the same stuff in it. We've got to find the deals by looking for a used model. We've got to find the deals looking for something with a little bit of mileage on it, but not too much. Right? So it's the same with a house.

We've got to find a house. Not brand new and ready to go, but with a little mileage on it needs a little bit of work. It's few miles. If it's got over 150,000 miles, we're going to say no, because we're not going to get much use out of it. So I've seen some shit houses, unless it's, you know, like a 15, $20,000 house, I've bought $30,000 houses a few times, quite a few times.

Actually. I loved buying those types of houses, but they always had a lot of work involved, but the bones were still there. The bones were good. The foundation was strong. So there's some things that I will go for. But you, when you're first starting out, I don't recommend you go for full on rehab. I recommend you go for something that's got about 30,000 miles on it.

Okay. It's used, but it's still in good condition. It's can still get you some places. So that's the type of property you're going to be looking for. A used 30,000 mile car. Okay. Having this is the type of house. So that's rule number three, never buy fully fixed up. Okay. Number four. So now that we're not buying fully fixed, we need to know what the ARV is.

No, your ARV, that's going to be rule number four. The ARV stands for after repaired value. What is that house worth when it's completely renovated and totally fixed up. If you were to go through and look at all the houses that sold in that area, what were the prices? What were the prices on the for sales?

Take a look at them. Look at what they looked like. Right. Make sure that they had the kitchens were all done. The bathrooms, worlds on everything was all done, and that's going to be your ARV. So let's say for instance, remember, remember what I said? If the pricing that I use as an example, doesn't fit your location, multiply it, everything multiplies really well.

Okay. So we're going to use a hundred thousand dollars. So all fixed up in my location. This house would go for a hundred thousand and how much needs to be done on it right now. The next thing that we're going to look at is what are the repairs. What am I going to have to do to this house to get it up to the value of a completely repaired and rehabbed house?

Let's say we walked through and we're like, oh my gosh, the bathroom is in crap shape. We're going to have to redo the bathroom and the tile and the flooring and blah, blah, blah. We're probably going to spend in a hundred thousand dollar market, maybe three grand to get a bathroom up to par the same with the kitchen.

When I walk into a kitchen and it's complete crap, I've been able to redo entire kitchen. For less than 5,000. Chris has the same. I know a few of you ask questions about how in the hell did she do a kitchen for $1,500. It's easy. When you got guys who are doing the cabinets and rehabbing cabinets and resurfacing them, it's not hard.

Okay. You guys think that you got to go buy top of the line stuff that you see in these rehab places where they put 30,000 into a place and you can totally do that. Yes, you can. But on a hundred thousand dollar house, you better not, you better not because that's a third of the price of that house. So if I've got a hundred thousand dollar house, I know that I can probably spend about 10,000 fixing it up if it was in the worst shape ever.

But my budget on that would probably be five to 8,000 maximum. Get some Tyler's, something would happen or maybe the appliances or something would push me up to the $10,000 mark. I wouldn't go much more than that. But I'm going to make a list of all the things in this property that need to be done. So now I've got the list of repairs and I know the ARV, so the house is worth a hundred thousand dollars super fixed up and all ready to go, right?

And let's say I've got $20,000 in repairs. So I got a hundred thousand minus the 20 to fix it up. And that leaves us $80,000. Are you going to offer them $80,000 for that property? You're not going to offer them $80,000 for that property. Why? Well, first of all, when you bought that property, what were your expenses buying that property?

What would they be? You'd have realtor expenses, closing fees, probably all kinds of permits and things like that. There's a lot of stuff that's going to go into that and the holding to as well holding means, how long is it going to take you to do all those repairs? Let's say it takes you six weeks.

You've got almost two months of holding and if you're going to fix it and flip it, then you've got, how long is it going to take to sell it and then close on it. Right? And if you're going to put a renter in there, how long is it going to take you to put a renter in there? And if you're going to furnish it and get it up and running on Airbnb, how long is it gonna take you to furnish it and fix it and get it up and running?

Right? You've got holding costs. Those are called holding costs. So you've got a lot of holding costs in there. So you want to make sure that what, what are we looking to have at the end of this? We're looking to have $70,000 all in guys. Remember $70,000, all. Not a hundred thousand dollars all, and we want the property to be worth the hundred thousand dollars, but everything out of our pocket, we want to be $70,000 all in because we need at the end of this to have 30,000 in equity, right?

So we're not looking at the a hundred minus 20, are we, we're looking at more like 70 minus 20 and holding costs. So we're going to be looking to purchase this property well under $50,000. So I would be giving somebody a low ass price on this property. I really, really would because the lower price, I offer them with my closing costs and my holding fees and fixing it up and putting that much into repair IP, asking for somewhere in the thirties, I really would, I'd be starting out somewhere in the thirties.

And I know that will shock a lot of years. Holy shit. It's like a hundred thousand dollar house. And even with all those repairs, it's around 80,000. It is for them, but I need to get a deal. I need to get a deal because if I don't, what am I going to do with this property? What happens if I pay $80,000 for this property?

And then I put 20,000 into it. Now it's worth a hundred thousand to me. What do I do with that property? Now I got to sit and hold that thing until it builds some equity and I can get a loan on it. So I don't want to do that. I've got to make sure that I'm buying that property for such a great price, that I can get a bank loan on it right away when I'm done.

So that at the end of all of this, once I get it fixed up and ready to go, and I have somebody come in and they do the appraisal on it and it appraises for a hundred thousand. That the bank can give me 70% of that, a $70,000 loan, and I'm walking away and putting money in my pocket. I'm paying myself off and putting money in my pocket would that 70 grand.

So you bet your sweet bud. I'm starting in the thirties. I'm starting low because I need to have equity in there. And when am I going to cut off and say, no, I'm going to go back and forth with this guy. I'm going to start at like 32 or something, or maybe even lower. Remember what Marie has said? Start when you're embarrassed.

You're like, okay, start where you're embarrassed. Start where you're embarrassed and they may, might come back. They might get angry and they might come back. You're going to have to explain, look after I put 20,000 or more, because here's my cost and you can give them all kinds of. Like I said, you can look at that kitchen and you can say, I could get this done for 8,000.

Right. But the majority of people, if they were to go in, they would probably put 15,000 into that and they would do it probably all themselves. And they would pay a lot more for it than they should. Right. So you can use those numbers when you're talking to. So you can say, wow, I'm going to have to put 15,000 into the kitchen.

I'm going to have to put 5,000 or more into the bathroom. You and your head, you have that $20,000 budget. You're going to tell them you have a $40,000 budget or a $50,000 budget or more because you're going to think of all the things that can go wrong. And you're going to tell them all of those things.

Here are all the things that they will probably have to put money into. You want them to know that you have to get the best price too, because of all the money and all the time, you're going to be putting into this property. It's going to cost you a bundle. So you have to get the best price you can get.

Now, if this price doesn't work for them, it doesn't work for them. And if it does, it does, there are some people, the price is just too low. They owe weighed more than that on it. You can't always win. Right? A lot of people say, well, how can you do that? People will have a mortgage. Not everybody has a mortgage.

A lot of times when we buy lists to send out our mailings and our postcards and our letters to when we buy those lists, we make sure that we're buying lists with properties that have the majority of the principal paid off. And that's the reason because we know we can't overpay for a property. We can't overpay for it.

That's also a reason why some people decide that they're not going to send letters to people. They would rather work with probate or foreclosures or pre-foreclosures or auctions because they don't want to wheel and deal with people. Banks are much easier to wheel and deal with than people because people have emotions tied to properties.

Right. But there's a lot of reasons why people want and need to get out of a property. So don't let these numbers scare you or intimidate you or make you feel as if you can not make these offers. There are a lot of reasons to get out of properties. When people are getting divorced, they need to get out of a property.

Maybe somebody is sick, they need to get out of a property. We can't take on all their burdens and pay them more than we can afford to pay them. Simply because we feel sorry for them. You know, the thing is everybody has a number and you don't know, maybe the number they're thinking is even better. So don't think that you know exactly what number they're thinking of.

You don't know, you're not them. You don't know what their motivation is for selling. Okay. And if it doesn't work next, that's all there is to it. Negotiate. Next. You're going to have a lot more nos than you're going to have yeses because you need to get it for a really good price. That's why you're going to have a lot more.

No, That's why you also have to have a really good head in this game because you're going to get a lot of nos. And if you take things personally, you will get worn out. But if you know, ahead of time that you have to go through so many nos to get a yes, then you're just like game on. So it's going to be Nope, Nope, Nope, Nope, no, no, Nope, no, no.

And now, yes. Yay. I went through my nose to get my yes. So we've got to let them know how much it's going to cost. We've got to get them closer to our numbers. Okay. I know it feels really uncomfortable and it probably feels a little sleazy, but it has to work. The numbers have to work and if they don't you're overpaying for the property and then you won't have a leg to stand on doing this.

So, again, we're not using the ARV as our basis for buying, but we're using the ARV as our basis for our loan. Okay. So that's rule number six is the ARV is meant to get the loan price. The ARV is meant for the loan price. So now we take our ARV times of the 30%, right. Or subtract the 30% equity that we want.

We've got our 70% of the ARV is our top budget, subtract the cost of all the repairs and the holding costs. And the closing costs to closing costs. If we're going to be flipping it one closing cost, if we're going to be holding it and any type of holding fees and holding expenses, any of the expenses that you can possibly think of.

And then some right, because we always put a cushion. Oh, he's like a cushion just in case because shit happens. Right. So it's like, okay, if it's got 20,000 of repairs, I'm going to put 25,000 down and then I'm going to subtract that from the 70. And I'm going to have 45,000. So let's say that's all my holding costs.

That's all my repairs. It's all my, all my stuff. Right. And then I'm going to start lower than that. Because that would be the maximum and you've got to start lower so they can come up now. Yeah. They might say F you and walk away. They might not even counter. And that's okay. People get offended, especially if it's their personal residence, they get offended very easily.

And you never want to tell people your house is a piece of shit. And that's why I'm giving you this low ball offer, because I'm going to have to put a ton of money into it and you don't want to make them feel bad. Right. So a lot of the houses that I used to pick up with my dad, I would get on auction. I loved going to auctions.

It was so easy, but you know what? The auction houses aren't as full as they used to be. So you do what you gotta do. So now I've been working with Maria a lot because I've been calling her and she's like, go lower, go lower. And I just need her in my corner to just give me that. Go ahead. To go. I know I'm not being emotional.

And I know I'm being smart because I got to be able to buy these properties for low. Now, what Chris was talking to him about was after we had a number in mind for the property that we bought, which was for sale at nearly 20,000 more, I think, um, I came in super low, but when the guy countered back, he countered back at my top number and I loved the property.

So what did I do? I let the emotions carry me away to just say, okay, fine. I'm not going to argue with this. I don't want to lose it. And at that time there were a lot of people bidding on these properties. So the crazy part is now, now it's great, right? Because now people are holding their cash close to them and they're not letting go of it.

So this is a great time, a great opportunity. And there's a lot of people desperate and you're more likely to find a lot more deals and you're more likely to find right now, a lot of deals. From landlords who aren't making the money or who are scared and they need to get out. So this is a really great time to use this scenario because you know what, the landlords, they already have pulling the equity out of these properties for a long, long time and most likely.

And so they've made it all back up and they're fine with letting it go for a little less. It might be a little piss, but whatever. They're like, you know what? I just want to get rid of it and have some cash in the bank. And there you go. So this is a fine time to be making these types of offers. It's a really good time.

And if you need to get a partner, somebody who can coach you through the offers, you're making get a friend and say, okay, here's the deal. I want to make a low ball offer. But sometimes I get a little scared, cause I don't want to offend people. And that's a real thing, especially for us nice people. We like people so much that we don't want to offend anybody.

But, you know, it's like, we're the kind of people who go into a restaurant, we get shitty service and we still leave 15%. What is wrong with us? I don't know. We got shitty service. The person was super rude and yet we still tip them because they got kids. And I don't know why I do that, but you know what? I don't do that anymore.

I don't now I don't feel as bad now. I don't feel as bad making low offers. And now I don't feel as bad, not tipping, a rude waiter. So we've got to be that person. We've got to become that person. If we don't have the balls to do shoot yet, we got to get a friend that helps us have the balls to be able to do that.

So get a friend who can talk you through this. And every time an offer comes back and you get another call, you call your friend and say, okay, my mindset, the top offer I wanted to make was 50,000. And they came back at 65 and I started at 32. Your friend might say go up to 35 and you know, the person might come back at, you know, 50 or 55, just keep going back and forth because guys, you can do it.

You can go back and forth. And actually the best deals I've ever gotten houses from, I went back and forth probably least a half dozen times, and sometimes it takes a long time. One thing I do know is when I go back and forth, I always put a 24 hour window on it. I want a 24 hour window on my offer and I want a 24 hour response because I have to get it going.

I, my money cannot sit still. Money is meant to flow. It is currency is meant to. And so these long things where people don't get back to you for a week, people will do that. They'll play that game. How desperate are they? I'm not going to answer back for a week. Well, all my contracts say they answer back within 24 hours or the numbers off the table.

And so you need to do that to set time limits so that you can't be playing these games forever and ever. Amen. Right? Okay. So you've picked out your number, you know what your top dollar is now, you're playing this game with them going back and forth, back and forth. It might work out and it might not guess what the majority of times it doesn't.

Yeah, I know it's reality. The majority of times you piss people off, they might not even reply back to you. But guess what one out of usually about every 15, 20, the offers that I make will come back with a response and the result that I want. I'm telling you right now. Cause you're like, this won't work and I'm saying, yeah, you're right.

It won't work. It won't work all the time. It won't work a majority of the time. It won't even work a very small percentage of the time. Right. But even if it works one out of a hundred times, if you were able to buy a property for, let's say 35, $40,000 and then put the 20,000 into it to fix it up, then you've got a property that all fixed up is worth a hundred thousand and you put 60,000 into, is that worth it?

Hell yeah. Hell yeah. It's worth it. It is absolutely freaking, you know what worth it? It is absolutely worth it. Now you've got a property worth, a hundred thousand dollars that you've got 60,000. And so what do you do with that? What did I teach you last week? Last week I taught you exactly what to do with it.

You paid 40,000 cash for. You put 20,000 into it, you went and got it appraised. And now it's worth a hundred thousand because we knew the ARV on it was a hundred thousand, right? So now it's worth a hundred thousand and you can go get a bank loan for 70% of that. 70%. Now a 70% loan would be a $70,000 loan on that.

Right? So when you have the 70,000 and you paid out 60, you'd have 10,000 left over. Remember what I talked to you last week, that 10,000 is completely and totally tax free because it's a loan. So you can take that $10,000 extra that you have and buy furniture. And you can turn it into a short-term rental, or you can put it in the bank of your business and put it towards another property, but you pulled out all of the money that you bought the property for.

Now there's a couple of other ways to do this. If you're going to do a bank loan, we do something called bridge mortgages. Now it's not all the time, but it's some of the time. And I always do it with a property that I'm going to hold for a long time. And let me tell you why. When you're working with a bank, they don't like to give you loans on properties that don't have any seasoning.

So they want to see that you've had a renter in there for a while, and how much rent you've been able to pull in. Even if you have rents in the area, sometimes they'll take a look at that and they'll make exceptions, but they're still going to charge you a lot. Sometimes they won't. Sometimes they want you to wait an entire year to be able to get alone.

When you pay cash for a property in order to get a mortgage on that property, they want you to hold that property for an entire year so that they can see how much money that property pulled in for you before they give you a loan. But if you get something called a bridge loan, a bridge loan is considered by mortgage companies to be a regular mortgage loan.

And that's going to make it super easy to do something called refinance. So instead of getting a whole new loan, you're just going to refinance the loan that you already have, and you can get some really great rates on a refinance. So let's do a for instance on this. So let's say. We have in our bank account, the entire $70,000 that we need to buy this property.

Right. It's a hundred thousand dollar property when it's ARV and in our bank account, we got more than 70. So we're, we're doing good. So instead of us paying the 40 or 45,000, let's just even it out and say we only paid 40. Okay. So instead of us paying the 40,000 to this guy for the house, we're going to get a business partner and they're going to give us the bridge loan.

They usually do a 50 50, so we'll put 20,000 in and they'll put 20,000 in. So we get a $20,000 loan and sometimes those bridge loans are expensive as shit. Let's just say they're expensive. Sometimes the interest rate is pretty high. It may even be as high as 10%. So it might be 10% on this $20,000 loan.

And that's okay because we're not going to have it very long. We're going to take that $20,000 loan. We're going to put our $20,000 into it to, to buy it. So we paid the $40,000 in the closing cost, blah, blah, blah. So now it's ours, right? But we got a $20,000 mortgage on it. We use 20,000 more of our money to fix it up and repair it.

Make sure everything is good. And now we've got to get it appraised. We'd go get it appraised. And we refinance it. It's so much easier to refinance a property than it is to get a brand new mortgage on a property. So you already have a loan on this. They're just considering this a normal refi. So they're going to get the appraisal done on it.

And they're going to say, oh, 70% loan to value, right. And they'll pull it out. They'll give you the 70,000. You'll pay off the guy that you owe the 20,000 to, and then you'll have another $50,000. You put 20,000 in to fix it and you put 20,000 into buy it. Remember you went halfsies with a guy and so you'll have an extra $10,000 again.

Totally. Tax-free because that's alone to reinvest and do the same thing over and over and over again. And maybe you want to just take that 10,000 and put some furniture in there and turn it into a short-term rental. Again, this is the easiest and best way to keep doing this over and over and over again.

So these are the numbers that we use, and this is the way that we do it. We're taking our money and we're using our money, but then we pull it all back out and we do it again. That's the way to build wealth. That's the way to build this system. Okay. And another thing that we do is that we make sure that we keep our businesses separate.

So when we pull that out and we get the loan, we have a real estate rental property. We may have it in its own LLC. Or we may have an, an LLC where we've got a bunch of hold properties, right. But whatever, LLC, we're holding it into, we've got a deal with our short-term rental company and our short-term rental company is going to pay rent to our real estate property.

And we're going to run two different businesses out of it. So one is our real estate property, and that's going to get a rent from our other business, which is the short-term rental BNB. Okay. So we've got two different businesses running out of there. What's really cool is we can make sure that the rent that we're charging our short-term rental company is paying all of those expenses and giving us a little bit of cashflow at the same time.

So that's what we want to look for now, when we looked at the numbers of this, that's another thing let's say again, that our ARV was a hundred thousand, right? So lesson number seven is to know what the rental prices are. The long-term rental prices. And I want my long-term rental prices. I'm no, I'm old fashioned and I've been doing it this way for a long time.

So I want my rental prices to be 1%. I don't want my prices to go much more than that. So if I'm buying a property for a hundred thousand dollars, I want my rent on that to be a thousand dollars a month. Okay. And it's easy. I'm going to take a property. If, if a property is 300,000, the rent should be around 3000 a month.

Now, if the rent is 2,500, I'm not going to pay 300,000 for that property. That's just how I am. Maybe you're in an area where it's okay. But honestly, I still use those numbers. I've been using those numbers since the eighties and they still hold true. And the crazy thing is I've heard a bunch of people in new real estate books, books that have been written in 2018, 2019, 2020.

And guess what? There's a lot of old school people out there using those same numbers. The reason why is because it gives us the ability to be able to pay that back and then some to comfortably pay the mortgage on those properties. And that's imperative. We have to make sure that we could pay it with a long-term renter inside in case the shit hits the fan, and that's what we're doing.

So that was another good reason to look at those numbers. Remember, at the beginning of this episode, I said to you that we're taking a look and seeing if the rents were thousand dollars a month for that we're looking and going, okay, could I still cashflow this for $800? And if I had a property with a $70,000 loan on it, I had to take out my taxes, insurance and a little cushion for maintenance and repairs.

Could I still be making money and cashflow in that property? If the rents were to go down to 800 a month, the answer would be yes. So that's perfect. That works out perfect for my scenario. Now what works out even better is when I look at this property and where the location is, and I know that my short-term rental can most likely pull in two and a half times, what that rent is.

It can be pulling in 2,500 or more as a short-term rental. And that's awesome. Has on busy months when it's pulling in 3,500, 4,000 a month in the slower months, it's pulling in 2,500 a month, bingo, I'm going to be cash flowing the, you know what out of that property, and I want you to chew. So here's the deal, guys.

I know that these numbers sometimes seem unreal for people. It's only because they don't do them. It's only because they haven't been out there working it. And it's only because they're not willing to get the note. Get the nose. There's a bunch of stories about getting the nose, get the nose you want to go out there.

If you know that 20 or 30 of these properties are going to be no, but then you'll get a yes. That's like somebody saying, okay, just go through these numbers, make this many offers. And one out of every 35 will be a yes. Then you look for the nose. You don't get sad every time somebody says, no, you just check off the box of the 35 knows that you're going to get, right.

So you make an offer, make an offer, make an offer. You go through the whole rigging Murrow of going back and forth with these guys. And then finally they say, no, then check the box. No, that's one. No. Now I got 34 more nos to go through before I get yes. And guess what? After a while you surprise yourself, when you first start, you might have to go through a hundred properties to get here.

But the more you do it, then the next one might be 80 nos to get the ass. And the next one might be 15 no's to get a yes. And the next one is like 35. We still have a very high ratio of nos and you should have a high ratio of nos. You know why? Because if people are saying yes to, you're not making your offers low enough, and that is the God's honest truth.

If you're getting yes. After yes, after gas, you're paying too damn much. That's the truth. When you list your property for sale and you don't get any offers on it, your property is either shit or your pricing is way overpriced. Because if your price is too low, you're going to have to get a crap load offers on your house.

And you can always tell it's the same thing. If you're getting too many yeses, then your price isn't low enough. You want to make sure you're getting nos because then you know that you're offering low enough price. And that's the truth. Nobody wants to tell you that because it makes it seem hard. What fricking real estate is hard figure.

You're lying to you when you watch those shows and they make it look easy. It's not freaking easy. Like you just want to square and shake somebody and go, it's not that easy. If it was that easy, everybody buddy would do it. That's the truth. And everybody doesn't succeed in this because they don't have the balls to go through with it.

It's just a numbers game. Pull your pants up, tighten your belt and go through it, man. It's like getting out there and getting punched in the face. Sometimes when you get a note, it feels like punch in the face after a while it doesn't, you're numb to it. So go out there and be that, you know, that Irish fighter that, you know, just keeps getting hit and then comes back up, getting hit and comes back up.

Be that prize fighter, man, just get the hit and then stand back up and say, okay, we're gonna do this again. And again and again and again and again, and again, and again. Until I get my yes, until somebody comes back and you get that property for the 40,000, because you know what, that will happen. That will happen.

You have no idea, too. There are a lot of people who just want to get rid of properties. Price has nothing to do with it. Most everybody goes out there. When they think about real estate, they think that the price is everything. The price is not everything. There are a lot of reasons to get rid of a property.

And Chris kind of touched on that last week, too, when she was talking about her dad, just getting rid of the properties, it doesn't fit in the portfolio anymore. And there are a lot of times where Chris's dad has taken the loss. Sometimes real estate investors take the loss. Why? So they can write off other properties.

So you don't know, you don't know, you think, you know, you think, you know what they would say, but you don't. You think, you know why they would say it, but you don't, you're not them. You're not walking in their shoes. So stop making assumptions and just start working out your part of the deal. I want you to think about this.

What would you do if you couldn't fail? Would you go out and do it? Majority of people wouldn't they really wouldn't because it's too damn hard. They can't take the nose, they can't take the rejection. And it's, it's really sad because it's not rejecting you. It's rejecting the numbers and the terms. And there might be a really good reason why they can't, but you are looking for the people who can you, aren't looking for the ones who can't.

So don't worry if it doesn't work out, it's no big deal. It really isn't. You just keep looking for those properties. You just keep making a bunch of offers and you've got to surround yourself with a really good team in the meantime. And so next week, we're going to talk about the team. That was actually a very good one, but I had to clean it up a lot.

We're going to be cutting out all the swearing for you, except we might leave the S word in there, but anything else is going to get cleaned up. I do apologize. I'm a much better Christian right now. So I have been trying to eliminate my colorful language and I do apologize for that in the past, so, wow.

Okay. But the numbers and everything were really great and they were dead on. And if you can tell that was right. I think for the beginning of the pandemic or right at the beginning of the pandemic, when people were just dropping their prices, they were just going down, down, down. And so we just, you know, when the prices go down, we start picking things up.

When people panic, that's a really good time to head into the market and then. As soon as the markets are picking up, boy, that market just went up, up, up and up. So a lot of the stuff that we picked up, I mean, we got immediate equity and stuff. Like I said, at the beginning of this podcast, we bought this house just over a year ago and we've picked up a couple of hundred thousand in equity on it already.

So, I mean, it just depends on when you buy how you buy and you know, the work you're willing to put in to something. And I always think it's a lot better that you put the equity in there and you get to make that up because you just, you have more options available to you when you do. So. Like I said, if you have any questions, email me, [email protected] and I'll be happy to get back to you and answer any questions that I possibly can.

And have a great weekend on Monday. We've got a brand new episode for you. So I look forward to talking to you, then have a great weekend. God, bless you. Go and grow.

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