It’s important to have a seamless process when you receive a great deal. Great deals don’t last long on the market so it’s important to know exactly what to do when the right deal hits your inbox.
Read in detail as our team gets a great deal under contract step by step.
Our team is always on the hunt, building relationships with new realtors and wholesalers in the Pittsburgh market. Thanks to our reputation of closing deals, realtors are excited to send us over the best opportunities, because they know we can close quickly, and ultimately get them their commission check.
The Counter Offer
This 5-unit building was sent to us by one of the newest realtors on our team. The property was originally listed for 140k when sent it over to our MAP Team. Once entered in our deal analyzer, the numbers made perfect sense at this price, but it's good practice to always negotiate the original listing price. We sent our agent the below counter offer in our Letter of Intent (LOI).
Key items in the counter offer:
- Purchase Price: $120,000
- Earnest Money: $2,000
- Seller Financing: $12,000 (10% of the Purchase Price)
We always attempt to negotiate seller financing. Our goal is to negotiate 10% seller financing on the down payment to avoid our clients bringing the full 20% down most lenders require. This will cut the amount in half that our clients are required to bring to the table to close, which is a big deal.
Once we sent the counter offer to our realtor, she quickly called us and expressed that she was unfamiliar with what seller financing was. It's not uncommon to run into a realtor who does not understand what seller financing is and how it works. Remember, your realtor is representing you when talking to other agents and sellers, so it's important that they are sold on seller financing to increase the likelihood of them securing it. We fully on-boarded our agent on what seller financing is and how it will benefit them! Remember, when persuading an agent or anyone else on what you want them to do, make sure you include how this will benefit them.
After 72 hours, we received the counter offer from the seller. The seller countered with the following:
- Purchase Price: $125,000
- Earnest Money: $2,000
- Seller Financing: $0
Run the Numbers
It’s important to always check the numbers in a deal analyzer prior to accepting any offers, and that's exactly what we did. Before moving forward with any deal, we always examine 3 key performance metrics: Cash-on-Cash Return, Cash Flow and Built-in Equity. After running the numbers, here is what we came up with in regards to those 3 metrics:
- Cashflow: $520.08
- Cash-on-Cash Return:15%
- Built-in Equity: 11.7%
Once we verified that the deal was in line with our metrics, we quickly gave our realtor the thumbs up to draft the Purchase and Sale Agreement to lock the deal under contract. The biggest mistake new investors make is to over think the deal. Don’t worry about the property condition or other things that you will inspect in your due diligence. Remember, TRUST then verify is what you should live by. We trust the numbers, but in our due diligence period, we will always verify the property is what they say it is. A realtor likes to work with a decisive investor who knows what he or she wants, not the investor who asks 1,000 questions before he or she finally feels comfortable.
Based on the Cash Flow Cycle, we know that there are 4-steps to closing a deal:
1. Find the Money
2. Find the Deal
3. Due Diligence
4. Acquisition and Property Management
The next step to perform on this deal is due diligence, where we will dig deeper into the financial and physical analysis. If everything checks out, we will have another deal in the books.