Discussing Formulas — Video

What this episode covers

Whenever I find myself discussing formulas I get a lotta feedback from real estate investors about what’s worked. Here’s another way to look at formulas. Download Audio   Transcript:   One of the things I love about real estate sites and real estate seminars is the common thread for most of them is either one or several formulas are just a guarantee to get you from point A to point B and faster than the average guy. I’m here to tell you, this coming October is 45 years being licensed in the business. The only formulas that ever worked for me was to make sure to cash the checks. The rest of it is this. One of the formulas I’ve learned is a formula about formulas. They all worked until the day they don’t. Here’s what I mean. Fix and Flippers have this formula. They want to buy it at a certain percentage of prefix value. Sometimes they want to say what’s a percentage of post fix up value. It’s very low and they know that if they can buy it at that price or lower, they’re going to come out okay. There was recently a very insightful article on Bigger Pockets. It spoke of how this wholesaler like to find fix up properties and it would wholesale them and make a descent quick profit giving those properties and the contracts to buy those properties to these Fix and Flippers. He didn’t kept finding properties worth, it didn’t make sense, he couldn’t sell them off to the Fix and Flippers but he knew they had equity. He knew that they could be bought for a below what he knew was market. He was of highly experienced professional. He said, “Look it.” Here’s the example, the comps easily showed $150,000 value in that neighborhood. Now again, don’t say, just said check the comps and then you’ll know what’s going on. Because most damages we’re looking comps in the neighborhood and it’s almost worst than never looking at the comps because they add so much to it and they don’t know what they’re seeing a lot of times. They either overshoot or undershoot the runway on value when they do that. This guy is a professional, he’s done many many many of these. He knows what he’s talking about. He sees the properties as, “You know what? This property’s worth a 150 and the owner just said they’re going to sell it to me for 107.” 107 isn’t low enough for the Flippers to buy. However I have enough money to buy those, I could either get a conventional loan to do it or in the case of the author of this post, and again it was an excellent post on Bigger Pockets. He could buy it for 107 for cash. He knew that it probably wouldn’t earn on the market. 150 that the comp said because I’m not sure he put it this way but I kind of discern between the lines, there was some functional obsolescence involved that could be fixed up, 10 or 15 grand. He put it on the market for 135, somebody bought it, they wanted to live there, they got a good deal, he made a lot of money even after commissions, sales, cost, all that. He made a quick 15 to 17 thousand bucks in less than a month. Now, why would you pass that up?Well, because the formula said, you shouldn’t do it. Formulas work until the day they caused you money, you can’t be locked in. If there’s anything that keeps you in a box, it’s a formula.That’s what the formula’s designed to do. Look at it, I’m not saying there are some formulas that aren’t great. The only formula I know that’s worked every time its tried, is buy low, sell high. The rest have their days when they just don’t do us well. Keep that in mind and forget it at your own risk.

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