Welcome Back to the Discount Property Investor Podcast Episode 5! Today we want to start talking about making offers and making offers and making offers. This is critical to your success in this business, don’t be afraid to make an offer and be told no. No only means you made an offer low enough or that you need to follow up next week. Mike and Dave also reveal the envelope formula for making offers and share with you how to determine value using zillow. Here is a quick how to video from Mike’s previous life : https://www.youtube.com/watch?v=do6af…
Check out our Tool Kit to see David & Mike’s Secret Weapons:
Welcome to the discount property investor podcast, where we show you how to buy real estate at a discount, so you can create wealth over time and income today. Our mission is to share what we have learned from the experience of others and help you make more money investing like a pro. We want to teach you how to create wealth by investing in real estate the discount investor way. Thanks for tuning in.
Mike: Welcome back, discount property investors, thanks for joining me your host Mike Slane and David Dodge. We are today going to talk about making offers. We encourage you guys to check us out online at the discountpropertyinvestor.com; there you can find all of the properties that we currently have available, as well as the link to freewholesalecourse.com. There you can learn to start or how to get started in wholesaling.
So let’s go ahead and get started then, today we are going to talk about making offers. Dave, do you want to go ahead and jump right in?
David: Let’s do it, jump right in. So, an offer is — obviously super important if you want to do deals guys. If you want to get properties under contract — and sell those contracts. AKA sell those deals; you have to make them offers. So last week we talked about marketing, marketing is the business that we’re in. I just want to touch on that again. We are in the marketing business. Real estate is our product. So marketing is obviously number one most important thing. If you are not marketing, you are not going to have people calling you. So once you get your marketing set up. Once you start doing your local networking and you get people contacting you, I don’t know if it will be people contacting you but — I always say if you can get them to contact you, that’s a warm lead. There are other ways to do marketing where you can call sellers off of Craigslist or Zillo that have some for rent or for sale, and talk to them that way. But regardless of how you are doing your marketing, either inbound or outbound. You need to be making offers. So the more offers you make, the more deals you are going to do period. I don’t think it gets much more simple than that. It is a numbers game folks, same with marketing. The more marketing you do the more motivated sellers you are going to be talking to. When it comes to offers it is the exact same thing. The more offers you’re making, the more properties you can buy to discount. Because — you are going to have a higher chance of getting that motivated seller that just says yes, right when you make that offer.
So, we encourage people to make as many offers as possible. There is really no reason you can’t make — at least a couple of offers every single day. If you have zero marketing budgets — you should have access to a phone or computer I would think
Mike: If you are listening to us you have access to a phone or computer.
David: Absolutely. Get on Zillo, get on Craigslist, go and find properties that are for rent — or for sale, pick up the phone and call them. Say, hey I saw your property, say hey I’m and investor. I can’t pay retail, because as an investor that wouldn’t make sense for my business. However, I am interested in buying your property. If it is something for sale go about it, if it’s for lease — just say hey I see that you are a landlord and you have this investment property, I am also an investor. Are you interested in selling it so you have this vacant property then make an offer on it.
Mike: This is something I want to hit on too. Don’t be afraid to make the offers, and — don’t be afraid to be told no. That is something in this business you are going to get rejected a lot.
David: No just means not today.
Mike: Yeah — it is part of this business and when I started, I struggled with it. I still struggle with it when you are told no, no, no. Especially when you are in a rut and you haven’t had anything good in a while, like — it’s a tough business. It will chew you up and spit you out. But be ready for it. That’s all part of it. When you are asking someone to sell a property at a discount. You can expect to be told no.
David: You can expect to be hung up on; you can expect to be called names.
Mike: What are you doing wasting my time, all sorts of stuff. You are already familiar with this if you have your marketing in place like we encouraged last week. You are going to get people calling just from the marketing say, hey take me off your list, things like that. There is constant rejection — but you just have to keep on moving forward.
David: Got to keep on moving forward. And just because somebody isn’t — doesn’t like your offer today, they are not ready to sell today — doesn’t mean that they are not going to be ready to sell tomorrow, or next week or next month. Follow up is super key in this business. Every offer that you make, you need to be following up on that offer. Most of the offers you make they are not going to say yes today, because the time isn’t right. But, if they know that you are an interested buyer — and that you have already make them an offer, when the time is right — they are going to think about that guy that called them — a week a month or six months ago that was interested in the property before they go out and maybe try and hire an agent or try and do some marketing of their own to list that property. You have already been the guy that’s contact them, and say hey I want to buy the property. So — making offers is obviously super important; the more offers you make the better. But also following up on those offers is key. You have to follow up on those offers — so if you are not already using some sort of CRM software that is going to help you with your customer relationship management, get one, there are tons of free ones out there.
Mike: Or you can even start with — excel and g-mails calendar. Just something that says hey, I’ve called this person I have made an offer for this, I am going to follow up in three weeks or whatever. Just follow up three days later and — three months later, something like that.
David: Even if you — just have some sort of a plan. You don’t have to be calling these people every day. But — once you submit an offer you need to definitely follow up with these people. So let’s talk about offers, how to submit offers, where to submit offers, what we are doing and what you can do. Also, if you go to the freewholesalecourse.com, or freewholesalecourse.com — we have a whole section on offers and — you can learn more there about — Mike, do you want to tell me more about how we are making offers and — the different ways that you can make offers?
Mike: Sure so – we will talk about — so I guess the different ways to make offers. First off – you have got the phone number obviously, these people have called you. So the first way is to call them and make a verbal offer over the phone. That there is again is where you will face some rejection right away. A little more immediate feedback but, it gives the opportunity to counter, or them the opportunity to counter right away and find out right away what their true price is and — that is exactly what offer is. Starting the conversation, so the next way then I would say is e-mailing it if you have their email. I always like to try and capture the email on the appointment when I am going to look at a house so I can e-mail it; I find it to be the most efficient way. We use digital signatures, so when we are sending out those contracts — which we will go into, in the next episode. We will share some of the contracts and go into that a little bit more in depth.
David: Stay tuned next week, contract.
Mike: Next week contracts, there you go. And the third way is just writing it out and mailing it to them. A lot of times if it is an older person or something who doesn’t use computers that much, they prefer to have it written. So again, — we like to bring contracts with us and — we —
David: Print out a stack of them, — didn’t mean to interrupt — and put them in your trunk. Contracts which we will get to next week, but that is your offer is a contract. So if you go out and meet these motivated sellers, and you have an offer — pull out a contract and start filling it out. I love to do that, because it lets them know that this guy is serious, he is ready to go. And whenever you are in front of them, let them acknowledge that you’re there because they called you most likely, and they have something that they are willing to sell. So say hey, do you acknowledge that — you — are trying to sell this house? Great, can you acknowledge that I’m a cash buyer investor and I can buy this house? Great, here’s a contract, this is my offer, start filling it out, if you can get them to sign it there then and there — awesome. Job well done, if not, leave it with them. But then go back to the other ways that Mike has just mentioned on. You want to call these people to follow up, you might even want to send them an e-mail with another offer in it. Or, even drop one in the mail. Sending offers in the mail has multiple advantages. One is that is kind of an automated following up with somebody. If you are really busy and you are out looking at tons of properties and making tons of offers — you may not have time to sit down and call 10, 20 or 30 or 100 people back weekly or even every other week. If you can just print that offer and drop it in the mail, two three, four days later they are going to get that and it’s just an automated way of letting them know — hey am interested, don’t forget I made you an offer, here is my offer, call me or e-mail me back if you would like to accept, negotiate or counter. So and so forth so — lots of ways to make offers.
Mike: So what to offer then is the next question.
David: Absolutely. What to offer and how to offer.
Mike: So there are two different ways that if you are not an agent or you don’t have access to the MLS, there are two different ways in — in my experience to kind of come up with the offer. Really one, so I would say goes to Zillow. Zillow is not super accurate, I am not saying look at its estimates, and I am not saying that at all. But Zillo has a huge amount of information.
David: Huge amount of data.
Mike: And you can pull the information that you need. So you go to Zillo, and you pull up the address or type in the address of the property you are looking at. Then you are going to look for recently sold. Only look at the recently sold around that property. With Zillo you can zoom in, zoom out, you can select the area. Again, very similar to what you would do in the MLS where you would look at the property address and a certain radius, and recently sold. I don’t think you can yet fine tune Zillo on — you can even on the dates. So you can pull properties on the last six months or so. Zillo is not 100% accurate but —
David: Well there are just tons of data —
Mike: Free way to find —
David: In some markets — if I can interrupt you for one sec, in some markets the estimate is spot on, on other markets it is way off. So — I just want to caution individuals that are — using this estimate — that’s not an appraised amount of the property. All that number is — data pulled from recent sales in the area — in the last couple of months and it’s given a kind of estimate based on bed and bath count, and square footage amount. So obviously it doesn’t take into consideration — the condition of the property, I don’t know exactly the format that they are using. But I just know the estimate is — it is not always accurate.
Mike: I wouldn’t put a lot emphasis on that estimate, I will say that upfront. But again, it’s a treasure trove of information which is free. Go find the [00:11:46.16 – inaudible] and then use an envelope formula as what I call it — sure someone else came up with it first but — here we kind of base it on — pretty close to 70% of the after repaired value. So you look at the [00:12:01.07 – inaudible] and you look at what you’re after repair value would be minus the repairs, and that’s just an easy way to start. 70% — is ok in our market, different areas — definitely not; you get into the hot areas, more up to 85%. It’s — so you got to know your market pretty well. But just get started with an offer around 70% minus repairs.
David: Don’t be afraid to make offers. I have heard this several times from other investors in my market and it’s kind of stuck with me. But if you’re embarrassed about your offer, then it is a pretty good offer so — if you are not embarrassed about your offer, you are probably offering too much. So — as a discount property investor you need to be making low offers, and you need to be able to buy these deals right. One thing that Mike had just mentioned was — the typical wholesaler’s formula. It’s a formula that if you are going to be wholesaling you should definitely know. So the formula is very, very basic — it goes like this. M.A.O, which stands for your maximum allowable offer equals — 70% of the ARV which stands for the after repairs value, minus the repair cost — minus your wholesale fee. MAO = 70% of ARV – REPAIRS – WHOLESALE FEE.
Now the reason that formula is so basic or so standard I should say — it’s the norm. Let’s switch gears for a second here. Put yourself in the shoes of a buyer. Anybody that is a seasoned real estate investor knows that you make your money when you buy, and you get paid when you sell. So you have to buy right. And if you can buy something with something with 20 or 30 % equity, then you are already going to guarantee yourself a good exit on that deal, not matter if that exit is short term or long term. You can buy with equity; you are going to be doing just fine. It helps in financing of the game. So back to the formula. M.A.O – maximum allowable offer = 70% of the ARV – after repair value – repairs – minus wholesalers fee. 70% is the norm folks, and how markets. We are located in St Louis Missouri, and we have some great school districts, some great zip codes and some great areas in general. We may alter out formula; we may go from 70% of the ARV to 80, even 85%. We also have areas that aren’t very nice areas. Places that I wouldn’t want to live — and we will modify that formula in the opposite direction, we will take that formula down to — 60% sometimes 50, sometimes 40%.
Mike: Don’t be bashful, we will go real low.
David: Sometimes we do 30% of the ARV offer because we know it’s not — we know that we are going to have trouble selling that deal. So — you can definitely modify the — percentage of your ARV. There are markets I know like — lots of areas in California, Texas, New York, New Jersey, Florida — so on and so forth. That you may even have to go up to 90% because investors are willing to buy with only 10% equity. So again, put yourself in the shoes of the investor. How much equity do you need to get to buy that property or that deal to where it’s still a deal? That’s how you can work it backwards to determine what the percentage of the ARV should be.
Mike: I think we have pretty much covered it. I want to emphasis — one thing. Don’t be afraid to make an offer — because you are going to listen to our next episode where we are going to go over contracts and we are going to tell you how to cover yourself so you are not stuck. So again, don’t be afraid to make offers — check out the next episode. We are going to help you write a contract, or show you have to use a contract properly.
David: But today, start making offers. Get out there.
Mike: Today’s action item then is just follow up with those people who have called you, follow up the people you have had an appointment with and send offers to them, make offers, mail the offers, just get the offers out there to get that conversation restarted with them if you have let those leads drop.
David: Absolutely, check us out online guys, freewholesalecourse.com, there is a link to that course on our website which is the discountpropertyinvestor.com, subscribe to our mailing list if you are not already on there. If you are looking for deals on the St Louis Market — again discountpropertyinvestor.com is where you can find our deals. Mike is going to wrap this episode up with a quote.
Mike: Yep, so next week join us for contracts. The quote is “The fortune is in the follow-up.”