Overcoming The "No Money" Pre-Offer Jitters
|So often you hear people say that the most important aspect of investing is to find good deals and that if you do this, the money to finance your purchases will soon follow. Well, to many new investors who haven't ever done a deal, this is pretty unnerving and seems easier said than done. Believing in the "money will be there" theory and then making offers based on this belief is like taking a huge leap of faith, particularly when it would hurt to lose an earnest money deposit and/or damage your reputation as a "closer" if the deal shouldn't close.|
For these reasons, I had a tough time making offers myself when I first got started. Despite what people told me and however logical it may have sounded, I found it difficult to believe that the money would be available if I found a good deal. So I sat on the sidelines for quite some time, watching others do the deals.
Then one day, I finally decided (actually, I needed) to give it a shot. I decided to take that leap of faith and believe that the money would come if I found a deal. So I started looking at many homes. Well, notice how I said, "looking." While this was a step forward, I still wasn't making offers. Many of you, I'm sure, can relate to this, and you are finding out, as I did, that it's rather difficult to secure a good deal when you don't make any offers.
In any event, there was only one way my lifestyle was going to change from one of living in a day-to-day rut to one of being free, and that was that I had to change. So I began (gasp) making offers on homes, trusting that if I found the right deal, the money would soon follow.
My First Offer
I don't remember how many offers I made before my first acceptance, but I do remember my first offer that was accepted. It was $36k for a property for which the bank was asking $45k (just reduced from $65k), and it was worth about $65k after about $7k in repairs.
Now, just to note, those of you who have read my course and know the formulas I use are probably thinking that my $36k offer was a little high. And you're right. I wouldn't offer this amount today. However, at the time, I was new and to be honest, hadn't really used any formula in arriving at my $36k number. It just seemed like a fair price (I don't recommend you try this at home).
At any rate, the bank countered my offer at $38k, and boy was I relieved! I had been scared to death as I had no idea what I would have done had they accepted. So I told my agent that I didn't want to go that high and figured that was that.
Well, my peace of mind didn't last long. Soon after rejecting their counteroffer, I had breakfast with the same friend of mine who had encouraged me to make the original offer. He basically shoved me into moving forward with the deal at the threat of stealing it from me. So I signed a contract for $38k, and the trusting began.
As it happened, everyone had been right. The money came right away. Within one week of telling people about the property, I had an investor willing to pay $40k cash for it. My friend told me to hold out for more, assuring me that if I couldn't find a buyer he would partner with me and borrow the money for the home. Eventually, I called a hard money lender the day before settlement to borrow the money. The lender provided me with $41,000, enough for purchase and closing costs. He knew the area, knew that it was a good deal, and knew that he was secure if he loaned me the $41k. So now, I had money available from not just one but three different sources: a cash investor willing to buy, a friend willing to partner, and a hard money lender willing to lend me the money.
This example is just one case of something I have seen over and over again during the course of my last 5 years of investing. If the numbers work, all sorts of avenues will become available for me to fund my purchase. Just to give you a more current example, I recently picked up a home for $105,000 which will be worth more than $200k after repairs. Since purchasing the property, I have offered it to others for $125,000 and money is being thrown at me from all directions¯investors who want to write me checks, builders who want to partner with me, and students who are begging me to sell the home to them.
Once again, I have a good deal, and the money is available from many places. Here are some other examples of money sources:
And the list goes on...
- You can get money from partners
- You can sell to other investors
- You can borrow from private lenders
- You can use credit cards
- You can borrow from banks
- You can ask the seller to finance
A "Good" Deal
"All right," you say, "so the money will be there, but what's a 'good' deal?" Well, I'm glad you asked. Here are the three characteristics of a good deal:
Location - This is the most important. The better the area, the more people will be willing to help you with the deal. If you are dealing in rough areas, you will have a rough time getting money.
Profit Potential - If a deal stands to make a lot of profit for someone, then it will attract many more people who see it as a secure investment. The numbers must "work."
Reasonable Price Range - Price needs to be within the range of the resources available to your buyers/lenders/partners. If you are trying to flip million-dollar homes, it is much harder to get the money.
No Deal, No Money
Now, occasionally, I have picked up not so good deals where the money did not come easily. In fact, sometimes it's been really tough, but in the final analysis, none of these homes were good deals.
So don't be surprised when you don't have a good deal and find it difficult to obtain financing in some form. The good news it that you can avoid putting yourself in these situations by making offers with numbers that work for you. Do this by performing your due diligence, researching the true after-repaired value of the home, and estimating the repairs properly.
And it's really not that difficult to stay out of trouble. Make offers with your head and don't let your emotions get the best of you. NEVER become a "motivated buyer," and when in doubt about your numbers, lower your offer. It may not be accepted, but at least you'll stay out of harm's way and still learn from the process. As time goes by, you will learn more and more, refine your offers, and find more of them being accepted.
If you do find yourself stuck with an average deal, take heart. Assuming your numbers are somewhat realistic, chances are you'll still make money renovating it.
Contracting to purchase a good deal and having other investors begging for you to sell it to them equates to an easy, quick, and therefore successful payday. And in the world of investing, there's nothing like a successful payday and the ensuing celebration. So do your best to find good deals without worrying about the money. It WILL be there, every single time. This has been true for me, and it will be true for you, too. So calm those butterflies and start making offers. It's the only way you'll ever move ahead.
|Since 1998 Steve Cook has flipped many hundreds of houses as an active Baltimore-area real estate investor. Steve's unique specialty is the "flipping homes 1-2 punch", a proven system of real estate investing that powerfully combines wholesaling and rehabbing houses. Steve Cook is dedicated to helping others succeed through understanding and aggressively applying his time-tested, step-by-step approach to flipping real estate. |
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