If you need assistance, please call 503-941-0276

The Deal Hierarchy

Tuesday, May 5, 2020   /   by AJ Shepard

The Deal Hierarchy



Speaker 1:

So, this is one of the things that I've talked with the brokers, [mailers 00:00:08], getting in contact today with a partner is exactly this part of this deal hierarchy. So the way that Real Estate brokerage is going is, it used to be that we would contact a seller and be like, "Hey, how can I sell your house." And give them a listing presentation. So we feel that the market is going in a different way. We've got open door now, we've got these other eye buyers that are coming in. What they're doing is they're given a cash deal. They're like, "Well why don't I just buy it, get it off your hands, get you on your way, and then I'll figure out how to sell it later." And maybe they slap some paint on it or maybe they just turn around and then just, do the arbitrage and sell it for $50,000 more and wait for the buyer and they can afford to hold onto it for a little bit.

Speaker 1:

So the market is definitely, it's changing. And so this slide here is kind of a hierarchy on what you can do with the Real Estate deal. So in the first one, it starts out as if you're looking at this and you're talking to someone, you're like, "Well, can I buy it?", "Is that something that our company can buy?", "Can we get it?", "Can we rent it out?", "Can we do it?", "Is the deal good enough for that?" Chris and I have definitely bought directly from our clients before. Some of those have been some of the best deals and it's a win-win situation because they don't have to deal with a bunch of different people. It happens quickly. They close when they want to move out. And so that's very nice.

Speaker 2:

Or when they need the money.

Speaker 1:

Or when they need the money or you work out some of the deal.

Speaker 1:

The next is, "Can I control it?" And that's like, well you know they maybe they don't want to get out and have to pay a whole bunch of taxes for getting a lump sum payments. So it's can you control the financing on it? Can they do owner financing and can you give them high principal payments and low-interest payments or vice versa, low-interest payments, and high principal payments? Lets trying to work out a deal where you control the financing of it and you control the payments and which allows for a win-win situation. So something that one of our clients wanted to just get a strict 11 or $12,000 a month. And I was like, "How do we get that person, this sort of payment?"

Speaker 1:

So we structured it where we got interest-only payments for the first couple of years and then after a little bit it switched and we got the rents up, then it switched over to principal payments and over on [inaudible 00:03:03]-sized schedule. So that's an example of how you can control it.

Speaker 1:

Next is, "Can you wholesale it?" Do we with our win investors network, we're introducing ourselves to investors? So is there a way to double in the deal and do it quickly and for like a quick close? You can do an assignment contract on it and get it out to some investors and know that they can flip it and that's pretty great. It's usually pretty quick.

Speaker 1:

The other thing too is like with the deal that you're going to wholesale or control or something like that, generally, there are some problems with it. If you get to a property and you see that it's just a class A property, everything is fixed up, chances are you're not going to be able to wholesale that. Typically, there's got to be some work in the deal or something that the seller isn't able to perform themselves.

Speaker 1:

So then next, "Can we create value by flipping it? Is there enough money in there or enough value where we can put in a little bit of money and do some cosmetic remodels or do something larger and yet get more money out of it. And then so once you've gone through all of these, it's like than can we double end with a retail buyer. That means just finding another buyer within our brokerage or where maybe one of our brokers gets the buy-side and we get the sell-side. And then finally, the last thing that we do know is, well Kim, I list it for you and that's just throwing it up to the open market and seeing who else stopped there.

Speaker 1:

So this is the way Real Estate is going. There's a bunch of firms that are setting themselves up like this and especially, and I think that we should definitely look at doing more of the items in the first category.

Speaker 1:

And when you get in front of a seller that has just an awful property, you'll know when you get into a deal or if someone's going to have a deal that's like this. A lot of the listings that we have that are our rentals are not going to fit in this bottom area. It's going to be more of like, "Do I need to create value by adding some square footage or can I double end it?" And then we have definitely listed rentals as we pride ourselves in good rentals that are well kept and so we definitely ended up investing a lot of those. But it's great, cause we are brokers as well and we have gained more clients that Nicole is bringing on and hopefully we can list more of that properties when they actually decide to sell or represent them when they want to buy more.

Speaker 1:

So, that is the presentation on the deal hierarchy and this is one of the slides that I thought was a really [apropos 00:06:32] to the brokerage. There definitely was some other stuff in here and they went over... This was about starting a wholesale company and our kind of... Nicole, we did this when we were targeting our multi-family list, it was like looking at areas, zip code, length of ownership. So when we came up with our multi-family list. We're looking at loans that are purchases that were more than five years old. Typically when someone buys a property, they want to hold onto it, have the appreciation for some time before they sell it. Now it's a good captioning depreciation on it. So typically, people are exchanging property anywhere from five to 15 years. So actually targeting those people can be very good.

Speaker 1:

So does anybody have any questions?

Speaker 3:

No, it's a lot of valuable information.

Ronnie:

How much money should you have if you want to start investing?

Speaker 1:

So the great thing with Real Estate is, technically you don't have to have any money, right? Taylor, I mean [crosstalk 00:07:55] this deal that he's doing with a partner, he's found someone else that has the money. He's going to do the work. He's found the deal. And he's finding a way to partner with them and it's a great opportunity.

Speaker 1:

They say when you're starting out in Real Estate and you have a lot of time and not a lot of money. There's a lot of other people that are on the other end of the spectrum that has a lot of money in Real Estate, but they don't have or want the time to go [bird 00:08:25] [dog 00:08:25] and find the deals and do the things that need to be done. So partnering up with someone that's on the other end of the spectrum can really allow you to really propel yourself forward. And so that is one of the cool things and the people that are super seasoned in it and have a lot of money know what a good deal is and generally, if they have to take over or help you out, they have the capacity or know how to do it. They generally don't want to, but...

Speaker 1:

So that is the premise of what [BiggerPockets 00:09:02] is all about, is bringing all those people together. There are all sorts of facets of Real Estate wholesaling, buying, property management, services such as contracting, escrow, financing. There are so many different types of jobs in Real Estate that generally, there's a lot of different types of investors as well.

Speaker 2:

But if you just come look at the model that [Adrian 00:09:36] and I have embodied, that started this company, it's called BRRRR and it's buying, rent, rehab, refinancing, repeat and listening to a podcast on it that kind of summed it up last night. And the idea is that if you want an extremely successful BRRRR, you need to find a property that after you have added your value to it, so your rehab, that all of your costs, the purchase price plus the repairs will equal 70% of what it [appraises 00:10:20] for or 75% of what it [appraises 00:10:22] for. Because then you will get all of your capital or all of your investors capital back on that refinance. So that's the equation that you need to back out, is if you have a property that you think is going to be worth $100,000 after you do all your fix ups and repairs, then you can only spend 75,000 acquiring it and fixing it up. So [AJ 00:10:55] and I managed to do that. And there's still deals out there that you can do that on. So...

Brad:

AJ-

AJ:

Yeah.

Brad:

When you're looking at this hierarchy and say, someone, one of us has a meeting with a client and the house fits perfect for this hierarchy, there's work that needs to be done. [inaudible 00:11:23].

Speaker 1:

I think what his question is, is if you guys as brokers find yourself in this deal and you don't have the finances to do it, is like, what can you do? And so the premise of this hierarchy is that if it's a good enough deal, then you should just buy it yourself. Hard money's going to make sense, that 12%, that 18% of the money, you just know that you are going to buy it and you are going to make a ton of money.

Speaker 1:

The next thing is, "Can I control it?" So if you don't have the financing to buy it, well then can you get the owner to agree to some sort of financing where you can control it or you do have the financing to do that and then if you don't and he's still, that doesn't work, then you have the question of well, "Well shoot, can I just wholesale it?" That takes no financing whatsoever. Wholesale in it, you literally sign a contract that, hey, I'm going to buy this property by or reserve the right to sell it and I reserve the right to cancel and then you go try to sell it to investors. So, that takes no financing whatsoever.

Speaker 1:

So those first three, I could understand it if you don't have the financing right off the bat to just go get a bank loan and do it, that's the whole point of trying to think through this thought process of what can I do with little or no money that I can, I can get into this Real Estate. Does that answer your question?

Brad:

Yeah 

Speaker 1:

A deal that's going to be that good, obviously Chris and I will try to help you out as best as possible.

AJ:

Yeah, sure with us. And we will help you. We're not going to steal it from you like we help you guys succeed and I think part of, "Can I can control it?" As well is talking with partners and figuring out, okay maybe I can't own it 100% but maybe I can get it, you know where I've got 25 or 50% and you bring in some partners to help.

Speaker 1:

One of my dad's favorite sayings was, "50% of something's better than 100% of nothing".

Uptown Properties
Chris Shepard
3526 SW Troy
Portland, OR 97219
503-941-0276
Fairway Independent Mortgage Corporation
Mike Maier
5410 SW Macadam Ave, Ste 100
Portland, OR 97239
503-545-9879

The vendor(s) appearing on this website has entered into an agreement with the RealtorĀ® to share advertising costs and expenses for this website. As such, the vendor(s) has paid to be placed on this website
The content relating to real estate for sale on this web site comes in part from the IDX program of the RMLS(TM) of Portland, Oregon. Real estate listings held by brokerage firms other than AJ Shepard - Uptown Properties are marked with the RMLS(TM) logo, and detailed information about these properties includes the names of the listing brokers. Listing content is copyright Ā© RMLS(TM), Portland, Oregon.

All information provided is deemed reliable but is not guaranteed and should be independently verified. This content last updated 9/20/2020 3:18 PM CST. Some properties which appear for sale on this web site may subsequently have sold or may no longer be available.

This site powered by CINC: www.cincpro.com