I sometimes hear investors fretting that they’re not getting enough out of their investment efforts. Well, perhaps they’re not putting enough in. What I’m specifically talking about is the “buy” appointment, which is where I see many investors getting frustrated the quickest. And that’s unfortunate, because that is the most critical element of what you do as a real estate investor. Your level of success hinges on what happens at that appointment, when you meet one-on-one with the sellers in their homes to ultimately earn their trust, earn their respect, gain their confidence and ultimately purchase that house. So it is absolutely critical that you put enough preparation and effort into that interaction.
If you’ve looked into the demands of college and what it takes to succeed there – maybe for yourself, or helping a son or daughter prepare for what will be expected – you may be familiar with this formula: For every one hour of coursework that you sign up for in a given semester, you should plan on spending at least two additional hours studying, preparing and doing homework.
I have found that same formula, or ratio, applies to succeeding when it comes to a buy appointment. As a real estate investor in Dallas, Texas, I have gone on hundreds and hundreds of buy appointments, those one-on-one meetings with sellers in their homes at their kitchen table or sitting with them on the living room couch. And in my experience, those appointments are approximately an hour long. Any less than that, you may not be successful; any more than that, you may be overdoing it. And for every hour spent at a buy appointment, I typically will find myself preparing for about two hours, just like that college course example.
A lot goes into your two hours of preparation
And it’s not necessarily all desk time, so I don’t want anybody to get concerned or upset, thinking, “Wow! That’s going to make for an awfully long work week if I have to spend two hours at a desk prior to every one-hour buy appointment.” There are a lot of other things that go into that two hours of preparation, such as pulling comparables, analyzing what’s selling in that marketplace, looking at the tax rolls for that particular property and studying all the other data that is available to you today.
It may also include preparing a “credibility packet” to leave with the seller. I do that, and so do a lot of investors. It may be a glossy folder that has testimonies from past sellers with whom we’ve worked. It may have pamphlets or all sorts of information that just help the sellers gain confidence that we are competent, experienced real estate investors who will follow through on our promise to purchase their home.
That two hours of preparation also includes the time it will take you to drive to that house, be there on time and, by the way, drive the comparables so you can take a look at those homes that have sold recently in that market that are similar to the house where you are getting ready to meet with the seller. You want see those properties from the curbside so you know where they are and what they are like, which will help you gain a better picture of whether they are good, reliable comparables for what your property could ultimately sell for.
There are three really critical elements to your buy-appointment preparation, in my experience. Number one, I’m going to focus heavily on getting comparables. Number two, I’m going to make sure I’m prepared to calculate efficiently and accurately the repairs that will be required on the house that I’m getting ready to see. And number three, I need to be able to accurately calculate and present an offer for that house that is reasonable to me and acceptable to the seller.
Comparables—the single most critical element of preparation
First, let’s talk about comparables, which in my opinion is the single most important piece of preparation for a buy appointment. You have got to understand the value of that property and what it can sell for once it’s repaired, because that is important information to use when ultimately calculating your offer. If your comparables are wrong, your offer is going to be wrong.
When I am identifying and analyzing comparables, I’m looking for homes that have a similar bedroom count, bathroom count, age and square footage. Ideally, they will be in the same subdivision as the property I will be visiting. Once you go outside that same subdivision or immediate neighborhood, you start to introduce factors that could negatively influence comparables.
Typically, I only want to see what has sold in the past 90 days. That’s going to give me the most accurate read on what that house could sell for in today’s market. And if that doesn’t provide a good-enough sample size, then I’ll stretch out and look at 180 days or maybe even 270 days. But be aware that in today’s real estate world, prices are rising so fast that if you go out too far, you may get some unrealistic data. So the more relevant and timely the comparables, the better.
If you are a Realtor or have access, you’ll want to use the Multiple Listing Service (MLS). Otherwise, you can use one of the many websites available for non-Realtors that provide access to data for a monthly fee. You can research your own comparables on a variety of different websites and do just fine. Still, the MLS is probably the most reliable source, and it’s what I use because I am a Realtor. And a quick tip: I always look at other sites, too—like Zillow, for the tax value—not necessarily because I think they are accurate for comparables, but I know my sellers are going to be looking at those data sources. They’re going to have those numbers in mind for the value of their property. So I want to be able to understand what they’re thinking and where they are getting their data.
Estimating repair costs is a trickier matter
Now let’s talk about repair cost, a number that you cannot prepare in advance as you can with comparable value. So while you can’t have a definite number in mind prior to seeing the house, you still need to be prepared—in mindset—so that when you walk into that house, you can quickly and accurately calculate what repairs likely are needed and how much that will cost. I like to use a lot of cost-per-square-foot estimates. You’ll learn these over time, or you can get them from different sources. For instance, if a wall inside a house needs to be painted, I know what it costs in my market to paint a house. I can quickly take 1500 square feet multiplied by $2 per square foot and know that it’s going to cost me $3,000 to paint that house on the inside.
In other cases I may use unit costs. I’ve learned in my market what certain things cost, like an air conditioner. Maybe an outside unit on that air conditioner in your market costs $2,500. Well, that’s quick and easy to add into your repair estimates. Or maybe a new electrical breaker box in your market costs $1,800 installed—quick and easy. Those are examples of unit costs.
And another tip when you are looking at the repairs: you really want to focus closely on the kitchen and the bathrooms and any room reconfigurations that you want to do. That’s where your costs will vary the most, where you’re going to spend the most and where you’re going to get your greatest return.
Your offer should have your profit built in
And finally, let’s talk about the offer and what you’re going to be able to calculate once you prepare great comparables and once you’ve estimated the repairs. Remember: in real estate investing, we always say that we make our money when we buy. That’s because your offer has your profit built into the calculation.
Here are a few points when making your offers. First, I always make an on-site offer. I’ve never left a seller’s house without making an offer. I always make an offer at the point the seller has been kind enough to invite me to his or her house, to set aside time to tell me about the situation and show me the house. I feel strongly that I should repay those efforts by making that seller an offer while I am on-site. Second, I always make the offer in writing—some sort of documentation with my exact offer. And third, I always have a contract ready in my briefcase in the event that the seller accepts my offer and agrees to sell the house to me at that offer price. I know that I’m ready and prepared to sign the contract right then and there, at the kitchen table or at the coffee table.
The key with the offer is that you’ve got to be prompt, professional and prepared. And when you are, you’ll stand a much greater chance of having your offer accepted. If you’ve got the right comparables and have accurately estimated your repairs, chances are you’re going to come up with a pretty fair offer for that seller that will have your profit built in, and you’re going to get to buy that house.
One more little side tip: I always like to know the loan balance on my seller’s property, which you can find out through the tax rolls. That helps give you an idea whether the seller will accept your offer, when you get to that point.
So in conclusion, your buy appointments are critical, and your preparation is paramount.
If you’re not getting the results from your buy appointments that you think you should be getting, the first place to look is at the preparation you’re putting into those appointments.
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About the Author
Kevin Guz is a Dallas, Texas-based residential real estate investor with more than 10 years of investing experience. He owns a HomeVestors (or “We Buy Ugly Houses”) franchise as well as the Clear Key companies, which focus on residential real estate wholesaling, rental property management and self-storage leasing. He also is a licensed real estate agent in the state of Texas. He enjoys sharing his ongoing personal experiences, perspectives and learnings from his start as a part-time or “weekend investor” and full-time corporate professional through his ultimate transition to a full-time real estate investor and business owner. You can listen to his podcasts at http://www.blogtalkradio.com/kevinguz.