How to Analyze a Deal

JD hosts today’s episode of The FortuneBuilders Real Estate Investing Show solo. Successful real estate investors know that not every deal is necessarily worth pursuing. In order to determine what deals are worth investing in, you need to know how to analyze the deal properly. In this episode, JD walks through each of the 5 steps to successfully analyze a real estate deal. Find out what exact process JD and his team follow when they analyze every property that comes their way, and how you can implement their steps so you can find more real estate success as well.

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How to Analyze a Deal

Hello, ladies and gentlemen, and welcome to the FortuneBuilders Real Estate Investing Show with your old pal JD. Uncle JD, as my nephews and nieces call me now. You can call me Mr. Esajian. You can call me JD. You can call me whatever you want as long as you get a lot of value out of this show. And I know you will today. We got a lot to cover today. And what we’re going to be talking about will help you buy more homes. The number one question we get asked at CT Homes is “how do you guys do it? How do you buy more houses?” And I’m going to take you through the exact process that we do when we analyze every deal.

Word of the Week

The Word of the Week, ladies and gentlemen, viewers around the globe watching, listening. However you’re consuming this information, is deal analysis. Now I go into my late-night DJ voice as I always do during the Word of the Week. Now those two words in and of themselves aren’t unique or unknown to most people. Most people know what the word deal means and most people know what the word analysis means. When you put them together, and you put them together well, and you do it at a high level, like I’m going to talk about on this show, if you want, you can buy more property. Part of this show is designed to help you do that. We’re going to get into the deal analysis process that we do at CT Homes on every single transaction and break that down for you to take into your businesses. So everyone, let’s get into it.

Filter

Step one is to filter those opportunities. We all have the same amount of time, but everyone uses that time differently. You might be listening or watching the show and you work a full-time job and your real estate is done. At the end of the day when you put the kids to bed or on the weekends, you might be sitting and listening to this show or watching it and you are in real estate full time.

You have other responsibilities, you have to do things for your family. You want to do things with your family and take care of yourself. You’re not working 24/7, that’s what I’m talking about here. Whatever amount of time you have, for your real estate business, you want to condense what you do in that time to the most productive activities. If you send out marketing, you’re spending money on marketing, online, offline direct mail, and you’re getting hundreds of leads, or dozens of leads every week or month, you’re not going to be able to call on all those.

You want to take the number of leads that you’re getting, and you want to filter them down to the lowest hanging fruit. To use an analogy, if you’re looking at listings on the MLS, you want to look at what’s available for you to buy. And maybe there are 10 new listings that day. Maybe there are 100 new listings that day, but you’re not going to call 100 listings in one day unless you have a team and maybe you do but even if you have a team, you want to call on the best of those available opportunities.

Step one is to filter the leads, you have the lowest hanging fruit, the ones that are most likely for you to be able to buy now that can be determined by a couple of things. Maybe they are in the neck of the woods that you’re doing other deals in. Maybe the real estate agents that are listing it, you’ve done other transactions with them. Maybe they have it. There’s a lot of motivation that you can see in the property: it’s in a lot of distress.

You may not know the motivation yet, which we’re going to talk about next. But whatever you’re looking at deal-wise, filter it down to the best opportunities that you can effectively call on. Maybe there’s more that you wish you could get to, but you only have an hour that day to call on or five hours that week. You’re going to focus on that lowest hanging fruit: that’s number one. If you waste time, and you spend your wheels on deals that are not the best opportunities, you’re just not getting yourself to the end goal.

Discovery Process

Now, you’ve got to gather information about the property. We call it step two: the discovery process or the discovery call, depending on what we’re doing next. Now, that’s different from writing offer driving comp. That’s a desktop analysis. The discovery process is a desktop analysis. And first and foremost, it’s calling the seller or calling the agent that’s representing the seller.

This is so important before we run our numbers, or as we’re running our numbers prior to diving into the repairs and what the value is going to be because in that discovery call step two (and this is a change we made about a dozen years ago now that I’m thinking about it, where instead of analyzing crunching numbers, we called and got as much information about the property and about the person that’s selling the property to help run our numbers).

On the discovery call, if we’re talking to the seller, or we’re talking to the agent, we’re trying to find out: what is the motivation? Is there anything else about the property that I don’t already see in the listing? Or that I don’t already see online that you can tell me about it right the condition, age of the home, and disrepair as it relates to the age? Whatever else about the property that isn’t already known in the listing have us on the MLS, or if the seller submitted information to you online that was told to you and you’re trying to uncover other things that are unique about that property.

Also (and this is extremely important) try to discover in this call the real motivation behind why someone’s selling. If you can understand what someone really needs in a sale, price of course, and we’ll talk about that in a moment.

Beyond price, why are they moving? Are they relocating for work? Do they have a life change due to someone passing away in the family? Did someone get sick? There are a lot of reasons why people sell. You may uncover what is called a Black Swan. Chris Voss and his book “Never Split the Difference” says “a black swan is that piece of information that you uncover, that gives you what you need to win the negotiation to get what you want and a black swan is understanding what the sellers motivation is and can help you write an offer that stands out amongst any other offer that they may have”.

If someone needs a quick sale, and the price isn’t as important, and you uncover that, or maybe they’re uncomfortable about people walking through their home, now you have a unique opportunity to schedule to go into the home when maybe few other people can get into the home.

Analyze the Property

Step three is where you actually analyze the property. You’re crunching numbers. Now you’re starting to do that in step two, but you can’t truly analyze the deal in its totality and its total sense. Totality, I think, is the word we should use there. You can’t completely analyze the deal and all numbers until you know more about the property.

The physical condition of the property: you’re going to go to the home, estimate repairs, maybe bring a contractor with you, whatever you need to do, depending on your experience level. You also need to know to analyze the deal properly. What’s going on with the seller? What’s the motivation? Do they have to sell? Do they want to sell? Is price important? Is price not the only important thing because of those other things you find out in step two in the discovery call?

Now notice, we haven’t talked anything about writing an offer yet. And that’s important.

“There’s a reason why we organize it this way. When you do a good job on the discovery call and you build a bunch of rapport with the seller or the agent that’s representing the seller, you find out unique things about them”

Then once you analyze the property, run your numbers drive the comps, estimate repairs we use a tool called the deal analyzer in our community and at CT Homes and we plug those numbers into that spreadsheet and it helps formulate the offer that we need to be based off the profitability then when you run out you then you can submit the offer which is coming up here. We found over the year that building rapport and uncovering the seller’s motivation and using those tools to analyze the deal will put you in better alignment to be able to call back or get in front of the seller again or with the agent. However, the transactions are happening and present your offer. So step three is to analyze the entire deal.

Making an Offer

Step four is the actual offer process: the offer call or submitting the offer or meeting the seller with the offer however that’s going down. On this call, we’re now presenting what we’re willing to pay. We’re also presenting any special offer term. Price is one term in an offer, but we’re submitting or presenting any other offer terms beyond price. That’s why in step two, that discovery process is so important because I can share countless examples over the years where we got our offer accepted to buy the home and price was not the most important thing that the seller is even looking at.

Because we wrote in the fact that they could use money in escrow from the deposit to buy their car to move to Nevada that’s what they needed to have to feel comfortable moving forward with us. It shows our commitment to helping people which we should do in this business. People will respect that. Knowing what happens within that discovery call allows you to do a thorough job of analyzing the property, and doing a great job here in step four of presenting your offer. So that is step four, is the actual offer process.

Follow Up

Step five is the actual follow-up. If your offer doesn’t get accepted I will give you some key points to follow up on. A great time to follow up is when the other offer that the seller accepts is the money that deposits to. If you don’t get your offer accepted, the seller accepts another offer, that offer is going to have to submit some money to the closing agent’s attorneys escrow, that’s the deposit at some point, depending on what the contract says.

Then there’s going to be some point in the contract where that buyer is going to have to remove all their contingencies. Those are two great times to follow up: when the other buyer has to put their money in and when their contingencies are set to be removed. You’re going to have to get that information, meaning ask the seller or ask the agent for those time periods. The reason you’re asking is so that you can be efficient with them in terms of following up to see if you can help them if the other buyer doesn’t perform.

Don’t expect that everyone will follow up with you even when they tell you that they will. If you want to buy more property, if you want to buy property in general, you will be proactive in following up on your offers that get accepted that don’t get accepted leads, etc. So you do the follow-up. The fifth step that we’re covering here today is the follow-up. We want to follow up when someone else’s deposit is due or the other buyers’ deposit due and when their contingencies are removed.

Summary

That’s a wrap. Those are the five stages I wanted to cover today. Ladies and gentlemen, as always, we appreciate everyone listening, watching, watching, or listening and all the comments that you provide, we do look at those and give us some feedback about today’s show and maybe ideas that you might have for subsequent shows because we do process that. Analyze that word of the week and make decisions off of future shows you really appreciate everyone tuning in and look forward to seeing all of you or audio hearing all of you are you hearing me on the next show. So have a great day, week, month, and year everyone we’ll see you on the next show.