You’ve probably heard me mention the House Flipping Mastermind group on the podcast or here on the blog. If you aren’t familiar with it here is the long-story-short version:
I realized that what a lot of newer house flippers seem to need the most is the opportunity to interact and share with others who are also learning and developing their businesses, and also receive tools and accountability that we all need when first starting out with a new endeavor. So, the House Flipping Mastermind was born to fulfill this need.
While the group has only been active for 3 weeks or so, I couldn’t be happier with the level of interaction and learning that members are expressing and experiencing.
Recently one of the members, David “Oz” Osmond from Utah (Yes, he’s related. No, he can’t get you free tickets to their Vegas show) joined the “Offer Club” (in other words, he started making offers on properties!), and had some questions about the next steps in his process.
Oz really exemplifies the type of person who will have success in this business. Rather than have “analysis paralysis”, he’s taking action despite being uncomfortable and getting some great hands-on education. This is the best way to learn and I have no doubt that Oz is going to do great things with his house flipping business.
I realized that our conversation on the mastermind group would provide some valuable insights to those who read the blog, so today I am sharing his question and my answer from the discussion forum.
So I have put 2 offers on 2 houses, and I find out Monday if they accept my offer on the one. In the contract it states that I need to provide 10% earnest money 2 days after they accept, so that would be Wednesday. Just starting out I heard that I need to “just make offers”, and the investors will work out when I get a deal under contract.
At this point I’m uncomfortable, (which means that I’m on the right path, right?) because I feel they will accept my offer based on all the comps. That being said, at this point I don’t know the best place to get the capital by Wed. What is the next step?
Here are the brief details while I’m trying to create a formal report:
I’m buying a house at $40 per sq. ft., with the $20 per sq. ft. rule (plus I have ran many other cost equations, and $20 is very close) that would put me at $60 total per sq. ft. The 5 comps in the area (2 of which are on the same street) have sold for $77 – $90 per sq. ft.
My total investment is:
- Listing Price: $124,900.00
- Offer Price: $102,900.00
- Rehab Cost: $20.00
- Square Footage: 2612
- Total Rehab: $52,240.00
- Total Investment: $155,140.00
Low – Average – High
- Average sq. ft. price: $70.00 – $75.00 – $80.00
- ARV: $182,840.00 – $195,900.00 – $208,960.00
First off let me be the first to welcome you to the offer club!
Yes the fact that you are getting out of your comfort zone confirms that you are progressing, and if, by chance, you do get one of your first 2 offers accepted than that is a VERY good problem for you to worry about!
If this happens then it will mean one of two things:
- You are a prodigy and are going to do really well in this business and I will be interviewing you in my next podcast to learn your secret!
- You were possibly off on your numbers somewhere and offered too high
However the truth is that your chances of getting your first 2 offers accepted are kind of small. But everything you have learned just by making those offers and going through this process will be more valuable than a 3 day seminar, and it will help you adjust as you continue to grow in your business.
Now one thing I do want to be clear about (and this is for everyone) is that I don’t really recommend only making offers without ever looking for financing opportunities or potential buyers. I think everyone should be going to your local RE investment clubs and getting to know locals and network with others as well.
Who are the players? Who’s buying houses? Maybe have a couple people handy that you can contact if you do come across a house. Find out who the hard money lenders in your area are. If you happen to speak to someone who has some capital that isn’t working for them then get their contact info.
I don’t think it is necessary to wait to have all of these things in a row and the stars aligned before ever getting out there and speaking with agents and making offers.
The truth is, there is only so much you can learn from me or anyone else. And until you get that actual hands on life experience there is only so much you will know about this business.
So, my main concern is that people out there will spend so much time studying and learning about house flipping, trying to “perfect their knowledge and understanding”, by the time they start making offers and taking action they still have to go through the educational experiences that are required for them to make any money in this business. That just adds on more time to their entire learning process and eventually it turns in to a “3 feet from gold” scenario where they get burned out or they give up too early.
People who get out there and start with the hardest (and most uncomfortable) part have a better understanding of what they need and can then continue to look for and build those resources with a better and more efficient understanding of what is involved.
I know that I, for one, take people much more seriously when I know they are out making offers than just “trying to come up with a plan”.
Okay, so after that rant back to your deal here.
If you do get one of those deals accepted then like you said you have the 48 hours to get your deposit in.
Talk about something to light a fire under your butt! I’m telling you there in nothing like an accepted deal to cause you to be willing to do things and take action you otherwise may not have been willing to do!
First off I want to mention that even though you will submit your deposit, if you have an inspection period and you cancel before it is over, you will get your deposit back. So you actually have as long as that time to figure out what you are going to do.
Do you think this is a deal you want to wholesale or get financed? I’m assuming whatever will make you some moolah, right?!
Once you get your offer accepted then you have a few days to focus on nothing else but either getting this deal financed or finding a buyer for it. I would start by contacting a local hard money (“HM”) lender or two and presenting it to them. I have a couple contacts for HM lenders in your area so just let me know if you do get it accepted and I will get you in touch with them.
This will serve 2 purposes:
One is possible financing (or at least partial financing) but two is if they take a look at the deal they might be able to let you know if you made any mistakes. Plus, at the same time you are also building a relationship and learning a ton!
During this same time you can also be trying to contact a potential buyer (assuming you are open to wholesaling it). If you get in touch with numerous potential buyers and none of them are even slightly interested in the deal then this might be another red flag.
Once again they might give you some feedback which will help you know more about your deal, but if they are interested? Boom! Either way you are failing forward fast, learning a ton, and building relationships with someone who is going to take you even more seriously because you actually have a deal under contract.
Finally you will be dialing for dollars which means you will be contacting every single person you know and seeing if they are interested in either lending or partnering on this deal. You will get a lot of no’s but you will get some maybe’s and eventually even a yes, or at least you will get someone who can fund part of the deal. So if you have a hard money lender who will fund most of the deal and a private money lender who can fill in the gap, then you will have all of the capital you need to finance your entire project!
Anyway, I hope that helps! Keep us posted! I even know a couple buyers in your state, and I might be joining them some time so I’m sure if you get a deal you’ll be able to get something figured out!
By the way,are you going to any investment clubs in Utah? I know a guy who invests in Ogden and runs a club in Salt Lake City and I think my brother Steven is going to start going. So if you aren’t aware of it or any others let me know and I’ll see if I can’t find the info for you.
So, there you have it. This is pretty much straight from the conversation thread in the mastermind group. I’m super proud of Oz to have taken his first steps and joining the “offer club”, because I know for sure that he is going to learn more from doing, than he would ever be able to learn from only studying or analyzing but never taking action.
Since he originally wrote his question in the Mastermind group, Oz has now joined the “Counter or Higher and Best” Club. He received the highest and best offer from the seller, submitted his final offer and is now waiting for a response! Once again, he’s getting that hands-on experience that will really set him up for success in the future.
For the rest of you, if you’re concerned about making offers or not having capital to wholesale or flip a deal, I hope you realize that capital isn’t really the biggest issue. Sure, you need capital, but if you are making offers and you do a good job getting some solid deals under contract, then the financing will happen. You just need to take action and MAKE OFFERS!
If you would like to get any additional information about the House Flipping Mastermind, be sure to come to my House Flipping Webinar on Thursday, March 6, 2014 at 6:00/9:00 PM (Pacific/Eastern). I will be sharing a lot of information about property acquisition as well as my own house flipping business. Plus you can ask me any question you like during our Q&A session at the end of the webinar. See you then!