Reverse Engineering | Understanding buyers, their capital sources, and how to back into the numbers – Tim Herriage

During this session, we will talk about Understanding buyers, their capital sources, and how to back into the numbers. The video is below and the notes are underneath the video. This is Week 2 of 10 from the Wholesale Real Estate Training Program. Make sure you bookmark the Wholesale Training Resource Center.

VIDEO

NOTES

WEEK TWO NOTES AND ACTION ITEMS

Finding the right exit strategy/property type:
- “The Art of War” Get the book
- Understand the “why” – it dictates the “how”
- The right exit strategy depends on the property
  - Your goals, risk tolerance, bandwidth, access to capital, time of year
The types of exit strategies:
- Assigning and Wholesaling
  - Assigning
    - Less risk, less work
    - You “control” the property
    - There is little capital needed
    - You will leave money on the table
    - Good for quick cash
  - Wholesaling
    - More risk, more work
    - You own the property
    - You do need capital
  - Why would investors buy from you?
    - They need a short cycle – you make it easy for them
    - They want to flip and sell
    - They are passive investors building their portfolios
- Rehabbing
  - Closer to full market value, but higher costs
  - Higher profit potential, higher risk
  - There are more people involved, higher holding costs, and the markets could change
- Renting
  - Highest profit potential
  - Appreciation
  - Tax benefits
  - Different types of rental properties:
    - Immediate cash flow properties
      - Popular in places like Dallas/Fort Worth, the Southeast, and the Midwest
    - Speculation properties
      - Popular in places like the East and West coasts
      - Holding on to the property because of potential rezoning or repurposing

Appreciation properties
- A place to shelter income, refinance, and sell later
- Rental classes:
  - Class A:
    - Above average appreciation and price point, better tenants
    - 4-6% appreciation and 8-10% gross yield
  - Class B:
    - Typically, $100k-$200k price point and less appreciation, working class tenants
    - 2-3% appreciation and 12-13% gross yield
  - Class C:
    - Cash flow, more issues with occupants
  - Class D:
    - Don’t do it
    - You will get leads on these, but you need a list of investors ready if you are going to consider assigning or wholesaling
- Back into the numbers
  - “You’ve got to know what you can sell it for so you know what you can buy it for.”
  - Match your strategy to your desired lifestyle
  - Understand what people will spend
Money sources for deals:
- Tips
  - Have capital sources lined up now
  - Treat each asset with the utmost attention
  - Don’t pay cash for houses
    - Debt is cheaper than equity
    - Leverage the cash you have
- Private money
  - These people will wire the money at closing and be in the first lien position on the note
  - 8-12% interest only and 1-3 points of origination
  - Make your first deal with each lender have the highest percentages and then work your way down
  - For long-term debt, ask them if they want to do 6%, 6.5%, or 7%
- Banks
  - Will lend you money once you have a track record
  - Could be around 4% interest only and less than 1 point of origination
  - The fee structure is low
  - Main problem: cross-collateralization
  - Keep in mind: renewal and adjustments could come at any time

Hard money loans
- 8-12% interest and 1-5 points of origination
- Government money
  - Refinancing
Links mentioned in the Q&A session
- Dr. Mark G. Dotzour webinar Free for you (login to your account)