Real Estate

let’s talk: REI BRAIN DUMP

Hey Guys!

Right now, I am working with a fellow Realtor who is interested in working with investors. She has never worked with investors before, so I set her a quick brain dump of all things REI. Before I became a Realtor, I honestly felt it was so hard to find a real estate agent who understood my objectives and was willing to work with them. So helping another Realtor specialize in investing is a dream and honestly a necessity for all my fellow investors out there. Here is what I came up with. 

So, as we do, let’s talk Real Estate, let’s talk REI BRAIN DUMP FOR REALTORS…

This is the exact email I sent the new agent…

(1) Rental Properties 
(2) Flips
(3) House Hacking
(4) Wholesaling
(5) Air BNB
(6) Money Lending 

(1) Cap Rate (Rental Properties)
Cap Rate= Net Operating Income/ Property Value

(2) 70% Rule (House Flippers)
The 70% rule is a basic quick calculation to determine what the maximum price you should offer on a property should be. This calculation is made by times-ing the after repaired value (“ARV”) by 70% and then subtracting any repairs needed. This gives you a 30% margin to cover your profit, holding costs & closing costs.TBH I do not normally use this but it is a good quick calculation when you are trying to work fast. Investors typically have their own calculators that will help them decide if it is in fact a good deal for them. 

(3) ROI (Rental Properties + House Flippers) 
Return on Investment
ROI = ((ARV – Purchase Price) / Costs of Investment) * 100%

(4) ARV (After Repair Value)
What the value of the property will be after it is rehabbed. You can find this by searching the following. Properties that sold in…
– The same zip code as the subject property
– Sold over the last 180 days
– Within 300 sq ft smaller and 300 sq ft bigger of the subject property
I then go through these results and make sure the properties I selected are recently renovated or up to date! Those are the comps you can use to calculate the ARV. 

You can represent the buyer on a wholesale deal. You are going to have to negotiate your commission, it will most likely be paid by the buyer (but you may be able to negotiate that you take some of the wholesaler’s profit). You can tell your buyer the reason they are paying you is to make sure that the sale is done correctly, that you are not getting screwed, etc. Wholesalers are not typically licensed agents so it is to the benefit of the buyer to have an agent involved. So get in with local wholesalers, get on their email lists so you can see their inventory and then look for the right buyer. I normally do not like working with wholesalers because there are a bunch of bad apples out there (sorry to any wholesalers out there that I may offend, realtors do not always have a great rep either!), but if you find an ethical one, form a good relationship with them!

I have three I use and can send if to you if you are interested!

(1) Commercial Loans
Loans on properties with 4+ units OR loans done when the buyer is an entity instead of a person. Common terms: 5 year balloon, 25 year amort schedule, 25% down payment, a bit higher interest rate – current commercial rates are 4%-6%. 

(2) Hard Money Loans
These are treated as cash. It is quick money. Closings can take plan in 2 weeks – 4 weeks. HIGH interest rates, repayment period of 12 months typically. If you are working with a buyer who is using hard money, you still want a pre-approval letter from their hard money lender (HML). 

(3) Private Money Loans
Treated as cash as well. You will want to use proof of funds from the private money lender before submitting or accepting a cash offer.

(4) Cash 
The best!! But always ask for proof of funds to include with the purchase and sale agreement. 

– Facebook investor groups
– Marketplace 
– Craigslist 
– Wholesalers – just google local real estate wholesalers  

– REIA – join the local REIA group 
– Fortune Builders – I will introduce you to a Fortune Builders student located in NY

Commercial properties are essentially any income producing property. These properties values are calculated based on the income they produce instead of the typical sales comparison method that we use for residential real estate. You can do this by using the Cap Rate Formula. 
Cap Rate = Net Operating Income / Property Value
Property Value = Cap Rate / Net Operating Income
Every area has a different “standard’ for cap rate. The better the area is, the lower the cap rate they can get away with. 
For example, in the city of Philly, commercial properties are currently selling at a 6% cap rate. I did a blog post about how I used this knowledge to price a commercial property for my client. Here is the post;
I think cap rates in the greater NYC area are currently 3%-4% but definitely try to do some better research on that!

SO, any other investors on here have quick REI facts they would share with new realtors?! Let us know so we can add them to this quick brain dump!

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