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Hey there,
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Throughout my real estate investment career, I've never stressed about 'finding a great deal.'
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Why? Because I've developed a systematic approach that works in virtually any market.
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Many investors struggle with this. But my hope is that by the end of this newsletter, you'll understand:
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Four acquisitions processes you NEED to establish ASAP
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The quickest and least stressful way to get deals coming in
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How to say YES to a property or MOVE ON within minutes
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The advantages of using CoC for deal analysis
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Inside the Trenches
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With experience investing in seven different states and multiple sub-markets, I honed in on what I think are the key elements to sourcing and analyzing deals that I still actively use today.
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*As you read this, write down or put in your notes the efforts you need to take if you’re missing or need to make improvements to your own acquisitions systems. My newsletters are only helpful if you actually take action, stay consistent, track your efforts - only then will you find yourself stressing less to do more deals.
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These are the four ESSENTIAL processes for sourcing real estate deals that will allow you to approach deal-finding in a more systematic way:
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Have a clearly defined buy box.
Many investors tell me they "can't find any good deals" or "there are no good deals out there."
When I hear this, I always ask, "What is a good deal to you?"
Surprisingly, most can't provide a clear definition. Later on, I'll explain WHY defining your buy box is crucial and HOW I use it to source deals.
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Leverage local experts.
Real estate is a TEAM SPORT, so why try to navigate a market or source deals alone?
While realtors sometimes get a bad rap from investors, I consistently leverage them in my business. It would be impossible to do what I do without great local realtors in my investment markets. This principle extends to contractors, inspectors, wholesalers, other investors, title and escrow agents, etc.
When entering a new market, I have a specific plan to build a team of experts. Believe it or not, I DON'T start by looking at deals - I look for people.
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Develop a clear, consistent, and replicable underwriting process.
Once you have a buy box and local experts helping you, the next step is to send your criteria to realtors and wholesalers in your target market (as I do). These eager professionals will start sending potential deals your way.
What then?
We need to efficiently underwrite these deals to provide quick feedback - yes, no, or need more info. From experience, if you decline a deal, clearly explaining why it doesn't work for you goes a long way.
Ask yourself: What specific data or information do you need to confidently purchase an investment property?
Document this process and determine how to gather this data quickly and accurately for each potential deal. Eventually, you'll be able to train others to do this for you, allowing you to scale your operations.
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Tell everyone what you’re looking for and often.
The more people who know what you're looking for in real estate (investors, wholesalers, agents, contractors, title agents, escrow agents, lenders, friends, etc.), the more likely you are to receive deals coming your way.
Follow up regularly, especially with realtors and wholesalers.
If you're doing direct-to-seller marketing, your CRM will be based on seller names and property addresses. In my case, buying from agents and wholesalers, my CRM consists of their contact information.
Follow-up is key in any sales cycle, including when dealing with realtors and wholesalers. Don't assume they'll remember your criteria or think to send you opportunities - build relationships and maintain regular contact.
This process becomes easier once you start closing deals with them, as they'll remember reliable, easy-to-work-with buyers.
Keep in mind that only about 1 in 20 wholesalers (and many realtors) consistently produce good deals, so when you find a great one, hold onto them.
However, most wholesalers only find one or two good deals in their entire careers, so you'll always need to source new contacts. It's part of the business.
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Now that we've explored the key elements to sourcing real estate deals, up next is deal analysis.
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Understanding how to evaluate potential investments is just as important as finding them and I want to explain WHY I use total project cash on cash return and DON’T include debt when analyzing deals.
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But first, what do I mean by project cash on cash return? Cash on cash is a financial metric used to evaluate the profitability of a project. It’s fairly simple to calculate:
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CoC = Net Profit After Sale / Project Cost (Purchase + Rehab + Holding Costs w/o Debt)
Add up the Project Cost — the cost to purchase the property, the total rehab costs, and any regular out-of-pocket holding costs (NOT DEBT).
Then, calculate the NET profit of the deal after selling it based on the estimated After Repair Value (ARV).
Now divide that by the Project Cost.
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Sales costs (realtor fees, escrow, etc.) are NOT factored into the out-of-pocket expenses because you're not paying these upfront; they're deducted from the sale proceeds before you receive the money.
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We're calculating the Return on Investment (ROI) for the OUT-OF-POCKET costs on a project as if we were to buy and rehab the property with cash, without any debt.
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This gives me the project’s cash on cash return. Calculating it this way offers several advantages:
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I can measure the MARGIN OF RISK on the property.
Net cash profit doesn't accurately measure risk, but MARGIN does a better job.
I use the CoC project return to assess risk, then look at the cash profit (after factoring in debt) to determine if the deal is worth my time.
RISK is the key factor here.
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I can consistently measure all deals the same way.
A 15% cash on cash return is the same 15% across all deals.
While there are other factors to consider before buying, if your minimum is a 15% CoC return and the deal doesn't meet that, why continue analyzing it?
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It's MUCH easier to explain and train others.
This is the biggest advantage. I can show a realtor, wholesaler, team member, or staff exactly how to calculate a cash on cash return for a deal.
They don't need to worry about my debt costs, points, fees, or funding sources. They just need to understand that the purchase price plus rehab costs should allow for a certain percentage return after resale.
That's it. I can train, duplicate, and replicate this process with as many people as I meet, creating a network of individuals looking for exactly what I'm willing to buy, who can then send potential deals my way. It's simple and effective.
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(…speaking of debt, if you're interested in private lending on my projects, click HERE).
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There's so much more to explore on this topic, and there are numerous ways to source deals. However, regardless of your sourcing method, I believe implementing these key elements will not only help you find more deals but also cleaner and better ones.
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Announcements
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Struggling to find CONSISTENT great deals & maximize profits? Looking for more on this topic?
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NEW! Upcoming workshop! EARLY BIRD PRICING ENDS TOMORROW!
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I recruited Mason Krell, my business partner, to join for our next workshop. This is one of my most requested topics to cover and Mason is an EXPERT at direct to seller strategies!
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While I prefer to buy from guys like him who do the leg work with homeowners, both have their place in getting more flips done and on our way to being Recovering House Flippers.
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This workshop will help you increase deal flow, reduce costs, and boost profitability. Expect to learn strategies to manage deal pipelines, create better margins, increase marketing ROI, and scale your business.
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Register before prices go up!
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Talk soon,
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Tarl
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