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Marcy Street Case Study #1: Finding The Property

by Brandon · 43 comments

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I want to start something new here at Real Estate In Your Twenties. I’m going to walk you through the exact process I am using to put together my newest deal. I don’t know how this deal is going to work, what I’m going to do with it, or how much I’ll make. However, I want to use this website as a means of teaching you exactly what I do.  Hopefully this will be incredibly beneficial to everyone!

Before I go too far, I want to make a few disclaimers:

  1. All the numbers I use are true and accurate. However, I may hide some of the names and addresses, to protect my interest and future buyers.
  2. This is just one example of how to put together a deal. There are hundreds of possible ways to put together a real estate deal, so do not simply copy this strategy. Each deal warrants it’s own analysis and examination.
  3. I have no idea where this is going. Hang on.

Finding the Property

Last month an acquaintance of mine named Jason became an official real estate agent, as I discovered after running into him at a local Starbucks. We talked about real estate for several minutes and I let him know the types of properties I was looking for. I told him I was interested in:

  • Homes in the higher-end part of my county for under $80,000.00
  • Homes in the lower-end part of my county for under $40,000.00
  • Multifamily homes prices at less than $30,000 per unit.

I love working with new real estate agents when finding homes to buy. While many people might shy away from new agents due to inexperience I find these agents are the most “hungry.” They are fresh out of a ninety hour class (!!) and ready to hit the ground running. They also have few other clients so they can, and will, spend more time working with you. I find that at my young age many real estate agents simply overlook me and contact their more mature buyers (despite the fact that I am one of the more prolific buyers in my town. I just don’t understand this).

So Jason called me up several days later and told me about several properties he had noticed on the market that met my qualifications. Specifically, there were two listed on the MLS that fit my first qualification above (both were located in Montesano, my hometown and the slightly “higher end” part of my town.) I had seen these before while perusing the MLS but had not spent any time looking closely. He told me he could show me both properties the next day.

A quick side note to wholesalers and real estate agents: Sometimes people need to be “pushed” to move forward. Although these homes were publicly listed on the MLS, I failed to ever take any serious notice. I have been too busy with my own remodel of my own house to pursue anything new. By Jason being proactive, contacting me and asking me to go look at them, it put me back on “search mode.” I’m not suggesting that you be obnoxious, but sometimes people need a slight push of encouragement.

Behind Curtain Number One and Two:

House number one was a two-bedroom HUD (government owned) home located on 4th Street and listed at $60,000. First, I do not generally like two-bedroom homes, as they are difficult to sell in my market. However, this home included a “bonus room” that could be converted to a third bedroom. When I see this, the word “jackpot” comes to mind. By converting a home from a two to a three bedroom, you can instantly add tens of thousands of dollars to the value often for just the cost of a wardrobe from Ikea.
Benefits include:

  • Newer appliances
  • Nice kitchen cabinets
  • Nice layout
  • Formal dining room
  • Fairly good condition.

Negatives include:

  • Located next to the railroad tracks.
  • No garage
  • Awkward layout
  • Approximately $25,000 to remodel

House number two was a three-bedroom estate (owned by a family after the death of the owner) located on Marcy Street in the same town on Montesano. Listed at $80,000, this home had good bones, but had a terrible smell that reminded me of both cat urine and old people’s feet.

Benefits include:

  • Located in a nice family neighborhood on a corner lot,
  • Terrific foundation
  • Large (but overgrown) yard
  • Good quality kitchen cabinets
  • Three bedrooms.

Negatives include:

  • Bad smell
  • Still some junk in the home
  • Roof in need of replacement
  • New carpet needed
  • New paint needed inside and outside.
  • One bedroom VERY small
  • Approximately $20,000.00 to remodel.

In typical fashion, I ran the numbers on each property and made an offer on each based on what would be beneficial to me. My agent on the properties, Jason, typed up the offers at his office and simply emailed them over to me to sign. I was able to electronically sign both on my laptop and within five minutes I had two offers submitted. Technology is incredible these days!

In case you are curious, I offered $30,000 on house number one and $50,000 on house number two, along with a thirty-day close and a ten-day inspection period on both.

What is And/Or Assigns?

On house number one I made my offer simply from myself, while on house number two I offered as “Brandon Turner and/or Assigns.”

You may have heard about the “and/or assigns” part of any offer. Guru’s love to tout the benefits of using this language in any offer you write up. Basically what this means is that you are offering to buy the house yourself and/or assign (or give it to) someone else. This is the primary way that most wholesalers make their incomes. They simply find properties, offer on them with “and/or assigns” included, and simply assign the deal to a house flipper or buyer for a fee.

The truth about assigning, however, is that banks do not generally accept any deal that includes this language. In today’s market, the majority of good deals are found with bank-owned properties, thus if you use that language- the bank will simply refuse your offer.

Thus, in the two offers I submitted I included the language “and/or assigns” only on house number two, because it was an estate (not bank or government owned).

We Have A Deal

Within several hours I heard back from my agent regarding house number one, the HUD home. HUD flat out refused the offer without even countering. Their response was simply “we will not accept an offer for less than 10% of the listing price.”

I don’t know if this is a hard-and-fast rule or simply the case on this home, but I have never seen the government work as fast as it did in that situation. Perhaps I will offer again on the property in the future, but the fact of the matter is – I don’t like how close it was to the railroad tracks. Remember the cliché definition of what matters in real estate: location, location, location. I can paint a property, fix a roof, or add a bedroom. I cannot, however, move a railroad track (without going to prison, that is!)

Meet Marcy…

The next day I receive a call from Jason regarding house number two, the estate. The sellers countered at $60,000.00, supposedly their “bottom line” in order to pay off the debts of the estate. Whether or not this was true or not I do not know. However, $60,000 was a number I was okay with. I had offered $50,000, knowing they would counter. Thus, I accepted their counter and we reached a deal.

The Math

I want to spend a few minutes going through the math of this deal. Even if you don’t like math, this perhaps the most important part of real estate investing. If you spend too much on a deal you will lose. It is as simple as that. The math is not hard, but it can be overwhelming. To learn more about the math behind analyzing a deal, check out my article How to Quickly Analyze a Single Family Home for Investment.

Below is an image of my calculations on this property. If you are interested in purchasing this Investment Property Calculator for you to analyze your own deals, click HERE. It’s $19 and your purchase just goes to helping me keep this blog up and running. Obviously, all the calculations you can do on your own. However, if you want to skip making your own for the price of a couple lattes, please download it now!

While this spreadsheet includes a LOT of information, let me break down the important parts. The spreadsheet is made of of four sections:

  1. Top Left : Basic House Information
  2. Bottom Left: Flip Calculations
  3. Top Right: Buy-N-Hold Calculations
  4. Bottom Right: Hybrid Flip/Buy-N-Hold Calculations

Let’s look first at the bottom left – the flip calculations.

Flip Property Analysis

According to this option, I will have roughly $82,000 invested in the deal. I believe, looking at comparisons of other remolded homes in the area, I can assume a future value between $115,000 and $130,000. With a $15,000 down payment and borrowing the rest from a hard money lender, I will end up with a profit of just over $21,000 after a sale price of $115,000.00 (I always try to stay conservative when doing calculations).

That’s not too shabby. I generally only flip if I can make a minimum of $20,000 on it and not have to do the labor myself. In this case, the home passes the “flippable test” in my mind.

Let’s look at the “buy and hold” side of the deal now, which is the upper right side of the spreadsheet (shown below)

Notice on these calculations I assume $2500 in purchase closing costs, and $1000 in holding costs (the costs paid before renting it, such as utilities) and putting a total of $20,000 into the deal of my own cash. This would result in a mortgage balance of $62,500 which results in a total monthly mortgage payment (at 4.5% for 30 years) of $316 per month. Adding insurance and taxes in the total monthly payment would be $488 per month.

I used the rental income of $750 here, though in reality I would hope to get closer to $900 per month. However, as I said earlier, I always calculate conservatively.

This would provide just over $260 per month in cashflow. However, keep in mind that this figure does not include repairs, property management, or vacancies. Assuming one vacant month each year and another $100 in repairs each month leaves us with approximately $100 per month in actual cashflow. Ideally, $100 per month is the minimum amount I ever allow on a buy-n-hold property, so techincally this property does fit the rule – but just barely.

Finally, let’s look a the “hybrid” section of the spreadsheet which is found on the bottom right side of the spreadsheet. By “hybrid” I am referring to the idea of fixing up a property, renting it out for a short number of years, and then re-selling when the market is a bit better. Take a look at the actual calculations below:

Hybrid Flip Buy N Hold Calculations

I assume, on these calculations, holding the property for five years but still selling for the same amount as earlier ($115,000 less selling costs for total proceeds of almost $104,000). This “hybrid” calculator essentially shows how much total money I would make combining both the cashflow from five years of renting the property with the profit from the forced appreciation made during the purchase and remodel. According to these figures, I will have made over $36,000 over the five year period, which computes to an average 36.52% return on investment (ROI) over each of those five years.

Try getting those returns from the stock market! (yes, I know this wasn’t as passive as the stock market, but so much more fun!).

When I look at long-term ROI, I never want the figure to dip below 30%. This property meets this requirement as well.

Clearly, all three sections of the Property Analysis Spreadsheet pass the test. I believe I could succeed at either of these three options.

Once again, if you’d like to download this exact spreadsheet calculator to use for yourself, click here to get it for just $19!

Now What?

I officially now have “Marcy” now under contract! As I mentioned before, I included a ten-day inspection period where I can either hire an inspector or do the inspection myself. I generally don’t recommend anyone do their own inspections unless they are especially qualified. Over the next several days I will go through the house and look at every nook and cranny to determine if there are any problems that I haven’t noticed yet.

Additionally, my thirty-day clock has begun ticking. It’s time that I now decide what to do with the property. I have many options, and I have been looking at all of them over the past weekend. I’ll share a few options below to show you what I’m thinking:

  1. Wholesale It: I could simply sell this home to another. I have two people lined up already that are interested in buying the home from me. Most likely, I would make several thousand dollars from simply “assigning” the property over to one of these people. Additionally, I would probably be hired later to coordinate the remodeling of the home as well (using my contractor contacts)– resulting in more income.
  2. Flip It: I could simply buy the home with a hard money lender and flip the home.
  3. Buy-N-Hold: I could add this home to my rental pool, assuming I’ll sell it someday in the future. This option is the most difficult, as I currently have too many mortgages in my name and loans are getting almost impossible to get from the banks for me, which leads me to my final option:
  4. Add A Partner: If I want to spend $0 to make this deal happen, another option I have is to add a partner to the deal and use their income/down payment/credit to buy the home. Technically, I could either flip or add this to my rental pool using this option. The down side of this technique is that I am forced to give up an equity stake and part of the profit to another.

Tomorrow I will be conducting my inspection, which will help me decide which option to take. I am leaning one way, but I am not going to tell you exactly what way until later (I need to keep you in suspense to get you to come back and read more!)

I’ll try to update this again as soon as something changes. Keep checking back often to see when the next post is updated!

Please let me know your thoughts in the comment section below. What would you do if you were in my shoes? Wholesale, flip, buy-n-hold, or partner?

Also, if you know anyone who this series would benefit, please send them a link! You can click below to share this via your Facebook or Twitter!

Have a blessed day!

Brandon

About Brandon

has written 199 Awesome posts in this blog.

Brandon Turner (G+) is the BiggerPockets.com Senior Editor and Community Director and owner of RealEstateInYourTwenties.com. He is also an Active Real Estate Investor (Flips, Apartments, and Buy-and-Hold), Entrepreneur, World Traveler, Third-Person Speaker, and Husband. Come hang out with him on Twitter!

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

P.S. Looking for more real estate investing knowledge? If you are interested in a top-notch course to help you understand the nuts and bolts of creative real estate investing, I would like to recommend Ben Leybovich's Cash Flow Freedom University. Ben is a close friend and has been my trusted adviser for years. He's a smart guy and CFFU is pretty awesome. The course is waitlisted, but while you wait for an opening Ben will send you tons of FREE content. Seriously. Click here to check it out.

(yes, that's an affiliate link!)

{ 40 comments… read them below or add one }

Mike P. August 14, 2012 at 2:39 pm

Brandon this is awesome! There are very few people that will do what you are showing us without charging for the knowledge and expertise. I love the spreadsheet as well. Rarely do you se any of the gurus brek things down like you have here. Looking forward to the next article!

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Brandon August 14, 2012 at 3:56 pm

Thanks Mike! I try to write what I wish others had written when I was starting. That’s always my goal with everything I write. Hope it pays off!

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Nick August 14, 2012 at 2:41 pm

It seems to me like, all things considered, flipping is the best choice for now IF you want to take it on. How would a decent partnership be set up if that’s the route you go? Basically asking what the deal would like, how much equity you’d keep in the deal, etc.? Seems like if you can keep a decent amount of equity, you’ll make less than flipping but more than wholesaling and you won’t have to be as creative financing wise.

By the way – thanks so much for this! Very much looking forward to watchign this deal progress. You probably also just convinced me to spend $9 too 😉

Thanks again,

Nick J.

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Brandon August 14, 2012 at 3:55 pm

That’s key with flips- if I want to take it on. If you asked my wife, she’d quickly yell “No way Jose!” But I love flips. So, hence my dilemma!

And it’s the best $9 you’ll spend today! 🙂 (well, unless you get a couple REALLY good Starbucks drinks!)

Stay tuned!

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Naveen March 15, 2013 at 5:17 am

This is a terrific article as most of your other articles are. Is that spreadsheet $9 or $19? Paypal says $19.

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Brandon March 15, 2013 at 6:45 am

Hey Naveen, it’s $19 – do I have it written $9 somewhere!? However, if you head over to BiggerPockets.com, and if you have a free account, there are some similar spreadsheets in the FilePlace for free in there. Fyi 🙂

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Nate August 14, 2012 at 3:09 pm

I have a few properties myself and I’m always interested to see other people’s analysis when it comes to investment decisions.

I don’t know what the terms are on your hard money loan but where I am, they charge 14% interest only with a 6-12 month term. When I calculate out a flip, I always include interest and holding costs (utilities, lawn care, etc).

Another option, if you have the connections, is to hold the property using private money. Ideally, this person would also loan you money for the repairs, up to a certain LTV, and in exchange, you could offer them a great interest rate (say, 10%) for 5 years or so.

Congrats and good luck!

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Brandon August 14, 2012 at 3:53 pm

Hey Nate, I’ve got a few hard money sources, generally hovering around the 4 points, 12% interest mark. Private money, however, is the ultimate goal. I’ve got a couple possible sources for that as well. I will be contacting them in the coming days. Thanks for the input! Stay in touch!

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Keith August 14, 2012 at 3:25 pm

Hi Brandon,

Very detailed, I Love it and I am learning a lot.

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Brandon August 14, 2012 at 3:52 pm

Thanks Keith! Me too, actually! 🙂

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Blake August 14, 2012 at 5:41 pm

If your numbers are conservative on the fix-n-flip and you really think you can sell in 6 months, that seems like a great ROI. On the other hand, that kind of income isn’t as passive as the buy-n-hold (which presents greater longer term income, especially if you can rent out for higher and rents continue to increase). Tough choice, but a good position to be in. I hope to be in a ‘tough choice’ situation like that some day soon.

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Brandon August 14, 2012 at 6:44 pm

It does seem like a great ROI, but of course is doesn’t account for how much my time is worth. I might only have $15-$20k invested, but it might consume much of the rest of my summer, plus push me back on finishing my own home (and other non-monetary consequences). Ah, decisions.

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Joe August 14, 2012 at 6:51 pm

In your hard money scenario, are the 3 points the only cost of the loan? Or, will you have to factor in the lender’s interest rate as well?

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Brandon August 14, 2012 at 7:43 pm

Hey Joe,

Good question. The 3 points are just the fees charged by the Hard Money Lender. The monthly interest only payment would actually be extra.

In fact, I didn’t really do a great job of calculating that in the above calculator. Okay, well I just screwed up really. I generally include it under “holding costs” but I only calculated $1500 for it in this case. That pretty short. I mean, interest only on 67000 is 670 each month.

So for a flip that I have to sell, it might take six months beginning to end, that’s more than $4000.00 plus the electricity, water, taxes, etc. So, that changes the deal a little. Obviously, if I could flip it two months, it might work out – but I never like to assume it will work that fast.

Thanks for pointing that out!

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T August 15, 2012 at 9:49 pm

Thanks for the fantastic post, I am eager to see how this turns out. I am working towards my first real estate investment purchase, and having insight into a real-life deal is very helpful.

Keep up the great work!
T

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Brandon August 18, 2012 at 4:32 am

Thanks T, I am eager as well. I’ve been working on it all week, so I got some cool stuff to share. I’ll try to write it up this weekend! Stay tuned!

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Andre August 19, 2012 at 10:12 pm

What is the time frame that you have expected for the repairs?

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Brandon August 20, 2012 at 1:18 am

I’m hoping the repairs would take between 3-5 weeks, depending on how far I’d take it. It could be done faster, but I primarily use just two or three guys to do all the remodeling, rather than a big team.

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Aaron August 21, 2012 at 8:27 am

I just found this site, and wow it is really helpful! I am looking to learn about real estate investing and I sincerely appreciate the usefulness of the information shared here. Thank you!

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Brandon August 22, 2012 at 3:59 am

Awesome, thanks Aaron! Thanks for connecting! Stay tuned for some cool upcoming stuff!

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Chuck @ Landlord Investor August 22, 2012 at 3:05 am

Brandon,

Nice details. They are not enough blogs out there that let you peek in at all the details.

Thanks,
Ch.

Reply

Brandon August 22, 2012 at 3:40 am

Thanks Chuck! I should have a new post up in the next two days, documenting my inspection process and what I’ve decided to do with the project! Stay tuned!

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Remi August 23, 2012 at 6:15 pm

This is great I’m 23 and I recently started getting into the investment side of Real Estate. All the info you have given not only me but to other subscribers will help build a company or just looking to gain experience for everyone

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Brandon August 23, 2012 at 9:02 pm

Thanks Remi, I hope I can help as many people as I can. 23 is a great age to start investing! You’ll do great!

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Derek August 27, 2012 at 1:57 pm

Hi Brandon,
Awesome content man, I like the real and specific details.
Q:
1.What do you use to sign offers electronically on your laptop?
Thanks,
Derek

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Brandon August 27, 2012 at 3:32 pm

Thanks Derek, and I use something called Authentisign through a company called Instanet Solutions. It’s something my Realtor uses, and I guess like 400,000 other agents across the world. I believe it costs a bit for an agent to do, but its great. Encourage your agent to get it. I’m not sure if just a buyer can, but that would be awesome too.

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Derek August 27, 2012 at 6:41 pm

Thx:)

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Marc September 5, 2012 at 11:00 pm

Thanks Brandon…I have not done a property in a long time, but you make it sound so easy. I love the way you break everything down. I am curious to know if you would have done the same strategies if you had won the property on the lower end part of town?

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Brandon September 6, 2012 at 9:18 pm

Hey Marc,

It sure seems easy at this stage. I’m sure I won’t think the same next week after we take possession and start work! And good question. Had I got the house on the other end of town, I probably would have skipped the “trying to sell” part and instead just shot for cashflow. The rent is about the same on that end, but the cost would be much less – so much better cashflow. Thanks for the comment!

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Chad September 11, 2012 at 4:09 am

Hey Brandon, you briefly touch on the overhead expenses on the buy and hold scenario, is figuring one vacant month per year and $100/month home repair/maintenance a pretty safe assumption? I’d been doing my own spreadsheeting before pulling the trigger on my first REI and had been figuring 10% monthly, but that may be a bit low…

Thanks,
-Chad

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Brandon September 20, 2012 at 4:45 am

Hey Chad,

yeah, I think that’s pretty close to how I figure those numbers. Obviously, older properties may have more maintenance,so adjust accordingly. When in doubt, be conservative and estimate high. If it still works – it’s a good deal!

Reply

Luxury Apartment In Ncr October 3, 2012 at 9:52 am

Its really good to find information about real estate on your blog. It has been of a great help to me. Thanks for sharing.
Regards
Krrish

Reply

Brandon October 3, 2012 at 3:11 pm

Thanks Krrish! Thanks for reading!

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Matt October 22, 2012 at 6:43 pm

Thanks for the great article, Brandon. Really enjoyed reading it, very motivational.

I have a small handful of rental properties currently, I am looking to add to the portfolio. I am constantly looking for private lenders, do you have any suggestions on how I may go about finding additional private lenders?

Thank you!

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Brandon October 23, 2012 at 4:45 am

Hey Matt –

Finding private lenders is definitely one of the biggest keys to success in this line of work. I recommend talking with everyone about what you do and just mention “I invest in real estate and partner with others who want to earn solid returns on their money. Do you know anyone who would benefit from something like that?” or something along those lines. Basically, I think it comes down to both a numbers game (talk to a lot of people) as well as a trust thing (your current private lenders tell others who tell others.) Good luck and thanks for the nice comment! Stay in touch!

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Mayank December 28, 2012 at 12:10 pm

Awesome Brandon. Rarely I’ve seen people sharing the details so well. I do a job in telecom and finding myself in earn ,save, retire…mode and want to come out of it desperately and become Financially Independent as soon as possible.Your articles are motivating me to achieve my goal. Thanks a ton ….

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Mike Nelson May 2, 2013 at 2:53 pm

Brandon, this is a really awesome post! Very thorough.

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Brandon May 2, 2013 at 3:33 pm

Thanks Mike. I finally sold that property, and have been meaning to write a follow up, but just haven’t yet! It’ll be out soon! 🙂

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Preeti July 1, 2013 at 5:04 am

Thank you for sharing with all of us. 1 thing i would like to ask is..
If i do a Joint Venture with a friend of mine,. then will it be safe?
Because running around in the bush alone is a huge task and a lot of burden will come on my shoulders.

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Joseph Waziri February 15, 2014 at 3:15 pm

Hi Brandon, Thank you very much for the great article, I am currently in the process of investing in real estate in Tanzania where this sector is at the very infancy stage – with more demand than supply!! what would be your two cents to a starter in this kind of market?

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