The February monthly meeting of our NJ real estate investors group, facilitated by Eddie Lopez of EKJ Real Estate, focused on tools to use in the current real estate market, with advice to both rehabbers and wholesalers.
Glen Gallucci:. This market is hot, properties are selling for top dollar. From what we’ve seen, this is going to be a good year. I don’t see anything changing in the near future. Interest rates are at the lowest they’ve ever been. That really fuels the market as well.
One thing I hear from wholesalers and rehabbers is they have a little fear of calling these sellers up on the phone. But realize, these people are in distressed situations, they want to sell their home. They know they’re in trouble. They need the cash, right?
Eddie: One of the main questions we get are “how did you get my number?” So it’s about trying to be as transparent as we possibly can over the phone, expressing who we are. These people are only giving you two seconds to decide whether you are a scammer or somebody they want to talk to. As a cold caller, you have to have tough skin. For every ten rude people you speak to, you do have two or three good conversations.
Paul: Yes, sellers could be getting multiple calls a night or a week. Be sympathetic and try to differentiate yourself. But remember, the foreclosure moratorium makes it even tougher because there’s no pressure or the need to sell right now. When these built-up defaults start to filter their way into the market, there might be some more motivation. Your job is to determine the level of motivation that seller has.
Last, the key is in the follow-up. And set yourself apart a little bit; it goes back to that high-touch portion of our business where we’re trying to bring value to sellers.
Glen: That’s true about follow-up, unless someone is blatantly saying “don’t call me again, I’m done.” And still, don’t be surprised if you get a call from them, but follow-up is key,
Paul: Look at it as a numbers game. You want to be in it when they’re ready and when you have less competition.
Glen: One of the key things to do when you’re calling sellers is to find out how much they owe. Remember, it’s not really what they want. What do they need to get out of that situation?
The other thing is, know what the after repaired value (ARV) is going to be before you even speak to the sellers; have an idea. They owe this amount, now the only question is how much work it needs to get it to the point where you’re going to sell at a profit.
You’re going to get a quick estimate. For those ranked beginners, go the contractor. Let them give you an estimate of everything in the house to come up with a renovation number.
Get all these prices down, so when you are speaking to a seller, and you know what the ARV is, you know what they owe, it’s just a determination of how much work you’re going to put in there. You can arrive at your offer. And more importantly, now you can show them why you’re making this offer . . . why the house is going to sit if they try to hold out to get more money, and why they’re not going to get more money.
When you make your offer, you need to get a contract signed. A lot of beginners are nervous about getting a contract signed because they’re afraid they’re going to get stuck and they can’t get out. You can sign a contract with contingencies.
Now for negotiating. You have the house under contract; you need to get your cash buyers and money lenders. They go hand in hand. Again, we’re back to knowing your ARV. Do you want to touch a little bit on that, Paul?
Paul: Knowing your ARV is going to give you a level of where you should be buying this property. If your ARV is off, or there’s a variance, it doesn’t appraise, or we don’t agree with it, you’re going to have a hard time getting financing, or your deal may not make sense.
As private money lenders, we look at these deals like we’re buying it. We don’t want anybody to get into a deal that we don’t think is going to be profitable because it’s not good for you as the investor or us as the lender. . . but more importantly, you as the investor because you’re putting up money for this as well.
You could easily be persuaded or talk yourself into saying “we’re going to get $750,000” when it’s really a $650,000 or $625,000 due to location. That’s why working with a local real estate agent can never hurt if you’re not too experienced.
You’re also projecting this six, seven, eight, sometimes 14 months down the road, which is important, too.
And it works on the flip side; we’ve seen some appraisal ARVs that we think are too high. So, it’s really important to look at those things like square footage, location, layout, and obviously the rehab and the finishes that you’re going to put into it.
Glen: That’s why having that local realtor is so important. Yes, you can go on just the sold comps, but you want to have that person that’s in that market and knows the proper formula, because you need to leave some profit for your investors that are buying for cash. They need a profit, so don’t try to squeeze them. You can have them do the assignment of contract and give a deposit.
The point is to get someone to take a check and write it out. If they’re not willing to do that, are they really serious about buying your deal? You don’t want to get held up, because you only have maybe 10 or 20 days that you have this house on the contract that you’ve got to make a decision on.
Paul: There are a lot of cash buyers that may just be looking to flip it to somebody else. You could get held up by somebody not being your end buyer.
Glen: And your lenders as well. I’m not talking about your hard money lender or private lenders like ourselves who are in the business. I’m talking about your aunt, uncle, neighbor who says yes, I’d lend $200,000, $300,000. Find out if they really have it.
Glen: All right, wholesalers, you just want to get a guesstimate and repair costs. Eddie, what did you do when you were first starting out?
Eddie: We would go to two properties that we knew were on the market, and have different contractors come give us prices on them. I would specifically say, “If you don’t mind, I’d love to just follow you around while you think out loud. And if you can get me an itemized, detailed invoice, that’d be great.” I think after a contractor comes with you to see a house the third or fourth time, they start realizing what’s going on. But aside from that, the honest answer is, get educated. Watch a lot of YouTube. And understand the process of how these things are done.
Glen: On YouTube, make sure those videos are in the Northeast, especially the New Jersey /New York area. If you’re looking at something down in South Carolina or Texas, the price differences can vary.
Paul: As a wholesaler, you just want to be close, and that should get the ball rolling. You don’t want to have a deal where you said it’s going to cost $25,000 to repair and when we look at it, it’s every bit of $60,000. Then you’re probably going to have too much to overcome to make that a deal.
Glen: Like Paul always says, compare the apples with apples. Get a good scope of work, so one contractor is going to be bidding on the same work that the other contractor has given the price on. And get a reputable contractor. Sometimes when they’re t too cheap, there’s a reason. That’s why getting three estimates is the best.
Eddie: The number one question to ask is, “What is not included in this invoice or this estimate?”
Glen: What about the hole in the roof? It wasn’t in my scope. The chimneys are a big one. I don’t do sidewalks, I don’t do driveways. I’m not fixing the fence.
Eddie: Question: What percentage should I add to my rehab budget for miscellaneous or surprise costs?
Glen: I think 10 to 15%. It’s going back to your scope of work. The more detailed that is, you can close that percentage.
Check back next month for part 2 of this comprehensive webinar for rehabbers and wholesalers.