Module 1: Qualifying Deals

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1 Disclaimer We are committed to providing the highest level of real estate investment education at all times. We do not practice law during our instruction nor should students rely on our instruction as legal advice. It is in your best interest to consult competent legal professionals when conducting actual transactions. We do not condone and will not teach any investment technique that is not legal or ethical or one that does not provide full disclosure to all involved parties as required by law.

2 Module 1: Qualifying Deals

3 6 Steps to Earning $10, Qualifying Deals 2. Analyzing Deals 3. Finding Deals 4. Making Offers 5. Getting Deals Under Contract 6. Submitting Deals

4 3 Qualifications for the QFMM 1. Right Type of Property 2. Fits our Target Buyer 3. Fits our Target Market

5 3 Qualifications for the QFMM 1. Right Type of Property 2. Fits our Target Buyer 3. Fits our Target Market

6 1). Right Type of Property Fix and Flip: Distressed properties in good retail locations that need fixed up Or in other words Buy a distressed property below value, make significant improvements, then resell for market value and earn a profit

7 Single Family Residential Only No condos/townhouses No multi-units No buy and holds rentals No lease options/subject-to/land contract House must be vacant (no tenants) Strategy: Sell to end buyer and cash out

8 3 Qualifications for the QFMM 1. Right Type of Property 2. Fits our Target Buyer 3. Fits our Target Market

9 2). Target Buyer There are 2 primary types of buyers: 1. Livable condition home buyer 2. Perfect condition home buyer

10 Livable Condition Home-Buyer Looking to be in a certain neighborhood but doesn t want to pay market value Primary motivation to buy is price not condition House has to be livable but not perfect Willing to put in sweat equity

11 Perfect Condition Home-Buyer Looks for a reason NOT to buy your home Wants everything to be modern and new Updated kitchen, granite, A/C, ceramic tile, landscaping, new carpet, paint, etc. Wants everything included Stainless steel appliances, mirrors, etc Willing to pay top price

12 QFMM Model Target Buyer = Perfect Condition Buyer Low Supply and High Demand Houses Sell Fast Houses Sell for Top Price

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18 Why this is Important to You When looking for deals and determining buy price Factor for full-blown rehabs New kitchens, baths, tile, granite, wood floors, mechanicals, windows, roofs, landscaping, paint, carpet, etc, etc

19 Estimating Repairs Fix and Flip Riches TM Training: Module 10 Rehab Estimating How to estimate repairs in 15 minutes Checklist provided Numbers included Remember the nicer the market, the more it cost to rehab

20 3 Qualifications for the QFMM 1. Right Type of Property 2. Fits our Target Buyer 3. Fits our Target Market

21 3). Fits Our Target Market What type of areas are we investing in. Level 1: Lower Class Rental areas, typically under $150,000 Level 2: Middle Class FHA, first time buyers, $150k to $300k Level 3: Lower-Upper/Upper Class Conventional, white collar, $300k to $600k Level 4 upper class/wealthy luxury homes, $600k and up

22 Ideal Target Market Peter and Jerry s most favorite is Level 3: $300,000 to $600,000

23 Ideal Target Market = Level 3 5 Reasons: 1. Big Deal vs. Little Deal Principle 2. Less Competition 3. Less Risk 4. Strong Price Range (Market) 5. Demand for Fixed-Up Homes

24 1). Big Deal Vs. Little Deal Principle It s just as much work to do a little deal as it is to do a big deal. Example: $150,000 ARV = $40,000 profit (min) $500,000 ARV = $100,000 profit (20%)

25 Ideal Target Market = Level 3 5 Reasons: 1. Big Deal vs. Little Deal Principle 2. Less Competition 3. Less Risk 4. Strong Price Range (Market) 5. Demand for Fixed-Up Homes

26 2). Less Competition Under $200,000 extremely competitive Less Capital needed = more competition Example 1: $52k Buy, $25k Repairs = $77k capital Sell for $150k, net $40k Example 2: $240k Buy, $75k Repairs = $315k capital Sell $500k, net $100k

27 Ideal Target Market = Level 3 5 Reasons: 1. Big Deal vs. Little Deal Principle 2. Less Competition 3. Less Risk 4. Strong Price Range (Market) 5. Demand for Fixed-Up Homes

28 3). Less Risk $300k to $600k is a safe price range Higher Risk: Under $100,000 Over $600,000

29 ARV Under $100,000 NOT Good Because Low end (not good areas) Rental Market Poor Appraisals Low Profit Margins Very Risky Market

30 ARV Over $600,000 NOT Ideal Because Luxury Market Custom Homes (specialty rehabs) Harder to determine ARV Bigger rehabs/ longer holding times

31 Ideal Target Market = Level 3 5 Reasons: 1. Big Deal vs. Little Deal Principle 2. Less Competition 3. Less Risk 4. Strong Price Range (Market) 5. Demand for Fixed-Up Homes

32 4). Strong Price Range $300,000 to $600,000 = strong market Dual income earners Better buyers (conventional) Good areas with Active markets

33 Ideal Target Market = Level 3 5 Reasons: 1. Big Deal vs. Little Deal Principle 2. Less Competition 3. Less Risk 4. Strong Price Range (Market) 5. Demand for Fixed-Up Homes

34 5). Demand for Fixed-Up Homes Highest Concentration of Perfect- Condition Homes-Buyers Ideal Price Range for Modern, Updated, Nice Homes Sell Quickly

35 Fast Track Student Mirrormont Way, Issaquah, WA

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51 Target Market Rules Ideal: $300,000 to $600,000 Acceptable: $200k to $600,000 Exception: $100,000 to $200,000 Must meet Min. profit of $40,000 Not Acceptable: under $100,000 Exception: Over $600,000 Fast track students only (after 1 st deal)

52 Identify Your Target Market Ideal Market has a strong wholesale market and at the same time a strong retail market Wholesale = buy distressed properties (i.e. buy for $50/sqft REO/short sale) Retail = Sell that property fixed up for (i.e. sell for $120/sqft totally renovated)

53 Quick Flip Money Machine TM 3450 sqft Purchase $285,000 or $83/sqft

54 Quick Flip Money Machine TM 151 days later Sol d for $595,000 or $172/sqft

55 Wholesale Vs Retail Buy $285,000 or $83/sqft wholesale Rehab $125,000 Sold for $595,000 or $172/sqft retail Other fees $85,000 Net Profit $100,000

56 What is wholesale? Do Your Homework MLS report on distressed sales (cash) Are there enough wholesale properties? What is retail? MLS report on retail sold comps Are there enough sold comps to establish a demand for fixed up homes?

57 Choosing Your Target Market Start with 1 area no bigger then 10 sq mile Once you ve identified your target market Learn it inside and out Drive-by Exercise (ask - WHY?) Commit to being a FINDING machine

58 Drive-By Exercise Print a list of sold comps in your target area for the past 30 days Drive each sold comp For every comp, ask WHY? Identify hot and cold spots Make notes on map of your market Really seek to understand your market