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 below the details of how our team helped get a great deal under contract.
Note: Results are atypical.
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 Back Story
This deal was sent to us from Dave P., an agent of ours in Pittsburgh, PA. CEO, Juan Pablo, had some business to attend to that particular week in Pittsburgh, but decided to make time to speak with Dave and do some quality control. Dave agreed to lunch. During lunch Dave informed JP of a listing coming up and that he would be meeting the seller within the next few minutes to review a few deals within his portfolio. Dave asked JP to ride along and take a look for it could be an ideal property for 100PF. After their meeting, JP returned to Atlanta awaiting a follow up from Dave. Dave was able to provide 100PF with the deal specifics and after a few rounds of negotiating the purchase price we were able to negotiate the price down from 200K to 160K, which we currently have under contract.
- Asking Price: $200K
- Purchase Price: $160K
- Earnest Money: $2K
- No Seller's Financing
- Closing 60 Days After Fully Executed Agreement of Sale
- Occupancy at Closing: 100% occupied at closing, but if not the buyer will receive a credit of two month's rent for each vacant unit at the time of closing.
During the negotiations of the deal, we found that the seller was in the middle of selling a huge chunk of his portfolio and wanted to receive as much money for closing so that he could scale up. Therefore, we were not able to get him to agree to the seller's financing.
Run the Numbers
When running the numbers on this particular deal we had to take into consideration that this is a portfolio deal. Some may say portfolio deals are unattractive in the multi-family world due to the higher maintenance costs or taxes on multiple properties. When taking into account the taxes and title work which is always higher when acquiring multiple buildings the title work is an expense to always take into account.
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 Flow, Cash-on-Cash Return and Built-in Equity. After running the numbers, here is what we came up with in regards to those 3 metrics:
- Cash Flow: $1,389.26
- Cash-on-Cash Return:35%
- Built-in Equity: 40.3%
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.