PhixNPhlip Video series: Real Estate Stories How To Underwrite Deals: https://youtu.be/_6JzHbtWp2o
Somebody comes to you and has a house and says “Joe I you want to buy my house how do how do we underwrite those deals how do we buy houses”?
We’ve done this enough this is really easy for us I have a Google sheet spreadsheet. I’m a full time realtor and they’ve either been a realtor or an underwriter of residential houses for purchase since 1998. I can do comparables in my dead sleep over and over and over again, so I go do the comps on the houses I can tell them what it’s worth. In its current condition what it’s worth when we’re gonna redo it, how much our wag our wild-ass guess of what it’s gonna cost to repair it and I dumped it into a spreadsheet.
A Google sheet spreadsheet that we’ve got so all that takes you 40 minutes?
Yeah and then almost whatever we do you know I I probably do that on I don’t know I probably do that on 15 or 20 properties before any of them make it to Joe and I. Probably mentally or physically run the comps on another 80 that never even make the spreadsheet. So then when you bring it back to me because we’re truly opportunists we look at the spreadsheet and Joe challenges everything. Feed off of each other okay so Joe and I challenge everything and and we even disclose this to many of the buyers which is pretty interesting or I think it’s interesting. Where we if we can buy the house if we can do a wag on the budget to repair it. If we can pay a basic return, and if we can make a dollar amount of you know thirty to forty five thousand dollars. Sometimes pushing 60 depending on how much money and time we have to advance how big the project is and and the nuances of the project. I mean we might show that all to our seller I do and then we might all then we would also show that to our investors. In this case in the crowdfunding crowd and then we would say then everything above that we share. If when we look at the project it looks like there’s going to be something above that, then I’m either cold for just that I’m cold on some things or I’m lukewarm or I’m hot and I hand it back to you and then usually you noodle it for one or two or three days depending on the motivation of the seller and whether we have to act or not.
Then we decide to take down the project and we take it down.
We usually have no consideration to whether it’s gonna be crowdfunded or not, he’s not even a part of the conversation. It’s all I know we either acquire it or we don’t but that’s not how we do or look at commercial deals almost at all. I mean we still do a pro forma but that’s really quite a bit further down the road. Well we’ve talked off and on about to be an opportunist, that’s really where you and I reside is in that world of our opportunity. Where we really don’t go out solicit lots of kinds of things methodically. We use your network and my background and in deals kind of come to us opportunistically. So on a commercial deal if it comes to us our quick-and-dirty. Is if it’s a building is the ground and building at construction cost is it worth less that at that value. Or less, or if it’s just the ground, and we look at ground prices around. It is are we are we getting a good value on the ground then we might take it down.
So doing you know what to do with it an actual end result in a commercial deal is different than in a residential.
I think who is more important than what to us a lot of time. With the commercial deals, well once we do, you know when I back when I when I was talking about the residential and you take the two or three days to noodle it. That we’ll do with the commercial deal is of a look tastes and smells correct then we will usually go to a partner and those partners in our network our partners that’ll help us either do the development and construction or possibly the end-user if we’re repositioning it and that really then tells us whether it’s the opportunity or not. We might have a turnin contract but we also might not and we really lean hard on those partners to know what they’re doing and that’s the relationships we’ve built.
So in closing we’ve talked about the opportunistic side and we’ve talked about the partners.
How critical some of these sponsors or partners are becoming. Especially on the commercial side but what you and I’ve always brought to the table is opportunism and creative financing. I mean that’s really the role I’ve been taking more and more on the creative financing side and I’m surprised at the number of people who are either really good at remodeling or really good at developing. Really good at you know some aspect of our bit of our of the real estate business that we’re participating in, but financing they just don’t know how to do. So usually when we bring come to the table which includes our discussion of crowdfunding.
We’re creative enough and experienced enough that we bring the right financing to the table and that’s the crux of the deal and that’s part of what makes us successful and a good partner.
With our co-sponsors in your network? Yeah absolutely I tell people when you’re not there often times you’re my write the check man and that’s that’s what it is for me. It’s been very different at very different times but I’ve always felt confident enough that if I saw an opportunity, even if I maybe didn’t have clearance to spend that money that day, if it was a good opportunity and I and I captured the right opportunity the money would be there. I think that’s kind of an illustrative of what you say we bring the financing package to the opportunity and that’s hopefully what we can bring to crowds of normal people. – exactly we’re highly confident in the delivery.
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