Evaluating Your Real Estate Investing Profit Closely

A listing agent told a Student that he had a buyer for the property the Student had under contract for $30,000 above the Student's price.  Thirty thousand dollars doesn't sound bad but let's look at the reality of the complete transaction.

To a casual observer this "shinning profit" may not be all it seems.  I asked the Student if the end-buyer was a cash buyer and he said "no".  That greatly complicates the transaction on the B – C leg.  In fact, the unknown nature of the end-buyer's lender could mean a seasoning period restriction, delays that run for months or no financing at all.  A quick solution would be to have the end-buyer have at least 25% of the purchase price as his down payment as this gives lenders a warm and fuzzy feeling.

Purchase Price                                $370,000

Sale Price                                         $400,000

Expenses

  1. Closing Costs (est.)                 $    4,000   (A – B leg)
  2. Hard Money Points (2)            $    7,400   (needed because B – C is getting conventional financing)
  3. Mortgage Recording                $    2,500
  4. Carrying Costs (1%/month)     $    7,400   (2 months only)
  5. Closing Costs (est.)                 $    3,000   (B – C leg)
  6. Realtor's commission (2.5%)  $  10,000
  7. Total Expenses (est.)              $  34,300

In the above example, the $30,000 potential profit that the agent sees turns into an actual loss of $4,300 and possibly much more if the end-buyer's conventional lender had a seasoning period of 90 days!  A seasoning period is a self-imposed cooling off period to keep an investor who is selling from flipping too soon – stinking thinking by the bank.

If the end-buyer was a cash buyer the Student could have saved money on #2, #3, #4 for a total of $17,300 but he would have paid $3,700 for transactional funding on the A – B leg.  These changes would mean the Student could have made – $30,000 – $17,300 = $12,700 less transactional funding fee of $3,700 = A "net" profit of $9,000 – if everything fell into place.

A final option for a cash transaction would be to have the end-buyer  pay the Student's closing costs (not uncommon if end-buyer is motivated) and the agent to take 2% commission on the B – C leg.  The result would be an estimated profit of $9,000 + $3,000 (#5) + $2,000 (#6) = $14,000 estimated "net" profit.

In this example, the Student having no money in the transaction, isn't a bad real estate investing profit.  However, the deal killer here was the end-buyer needing conventional financing and the uncertainty of actually getting timely financing.

change your life mentoring click button j 300x236 1I wish you limitless success,

Dave Dinkel

Visit davedinkel.com for full privacy policy, terms of use, etc.  Be sure to contact us through the website at davedinkel.com if you have questions or concerns ([email protected]).  Results mentioned in this presentation and any video, article, and/or material related to Dave Dinkel and his associated businesses are not typical nor are a guarantee of any earning potential.  No advice is to be construed as legal, accounting, or professional advice EVER.  Please consult related licensed and qualified professionals before taking any action.  No person(s) mentioned in the articles and /or shown on videos received compensation in any form for their opinions.

Evaluating Your Real Estate Investing Profit Closely

A listing agent told a Student that he had a buyer for the property the Student had under contract for $30,000 above the Student's price.  Thirty thousand dollars doesn't sound bad but let's look at the reality of the complete transaction.

To a casual observer this "shinning profit" may not be all it seems.  I asked the Student if the end-buyer was a cash buyer and he said "no".  That greatly complicates the transaction on the B – C leg.  In fact, the unknown nature of the end-buyer's lender could mean a seasoning period restriction, delays that run for months or no financing at all.  A quick solution would be to have the end-buyer have at least 25% of the purchase price as his down payment as this gives lenders a warm and fuzzy feeling.

Purchase Price                                $370,000

Sale Price                                         $400,000

Expenses

  1. Closing Costs (est.)                 $    4,000   (A – B leg)
  2. Hard Money Points (2)            $    7,400   (needed because B – C is getting conventional financing)
  3. Mortgage Recording                $    2,500
  4. Carrying Costs (1%/month)     $    7,400   (2 months only)
  5. Closing Costs (est.)                 $    3,000   (B – C leg)
  6. Realtor's commission (2.5%)  $  10,000
  7. Total Expenses (est.)              $  34,300

In the above example, the $30,000 potential profit that the agent sees turns into an actual loss of $4,300 and possibly much more if the end-buyer's conventional lender had a seasoning period of 90 days!  A seasoning period is a self-imposed cooling off period to keep an investor who is selling from flipping too soon – stinking thinking by the bank.

If the end-buyer was a cash buyer the Student could have saved money on #2, #3, #4 for a total of $17,300 but he would have paid $3,700 for transactional funding on the A – B leg.  These changes would mean the Student could have made – $30,000 – $17,300 = $12,700 less transactional funding fee of $3,700 = A "net" profit of $9,000 – if everything fell into place.

A final option for a cash transaction would be to have the end-buyer  pay the Student's closing costs (not uncommon if end-buyer is motivated) and the agent to take 2% commission on the B – C leg.  The result would be an estimated profit of $9,000 + $3,000 (#5) + $2,000 (#6) = $14,000 estimated "net" profit.

In this example, the Student having no money in the transaction, isn't a bad real estate investing profit.  However, the deal killer here was the end-buyer needing conventional financing and the uncertainty of actually getting timely financing.

change your life mentoring click button j 300x236 1I wish you limitless success,

Dave Dinkel

Frequently Asked Questions

1. What Should I Do If a Seller Ghosts Me?

If you feel you have been ghosted, act decisively and quickly. If you have tried texting and calling, it's time to drive by the seller's location. I always take the recorded Notice of Interest or Memorandum of Contract to leave, so the seller knows it exists. Go by at a time when you know they will be there and don't be confrontational, just get the facts.

In our experience with new investors, the chances of losing a deal with no contract is likely over 85%. Verbal commitments do not apply in contract law; get everything in writing, especially contract changes.

Different 'gurus' have different opinions, but our experience is finding motivated sellers and then a buyer for your deal. Ideally, you should be finding motivated buyers from day one, so you are ready when you find a seller. Buyers are easier to find as you can see at https://davedinkel.com/products/

Prevention only comes about by thinking a Black Hat wholesaler will be coming after your deal. First, educate the seller that an unscrupulous investor may come by and illegally offer more money, have the seller sign your "Notice to Homeowner," stating that he understands he cannot accept another offer.

There is nothing illegal about changing their mind, it is called seller remorse and occurs about 25% of the time. However, if they have signed your contract, it can't be cancelled for any reason unless acceptable to the investor/buyer.

If price is an objection, you need to find out how important it is to sell fast and for cash. If the seller isn't under a time constraint, has a money issue, or has a personal dilemma, he may not agree to the price you need. Offer to help move and build it into your price before you make your offer. However, never give the seller money; only pay the moving company, and only after closing (escrow with a closing agent). If fear is the seller's issue, break it down into what the real problem is and answer their objections one at a time.

You can get to the root of motivation for a seller by asking a few questions. First, "Why are you selling?", "How soon can you close?", and Are you ready to sign an AGREEMENT today, if not, what do I have to do to make you comfortable?'. The answers to these questions will determine the truth about your seller's motivations.

The best times to involve your attorney in your deals are to have him review your contracting, review the signed contracts from the seller and end buyer, have him open escrow and start the title work, negotiate with city or counties for lien reductions or mortgage payoffs with lenders, and to close the transactions." Your attorney is not the adversary; it's the opposing party's attorney who is a deal killer, and having your attorney allows him to help overcome this obstacle.

The key to successful prospecting and bringing back deals that didn't close is to follow up until the property is transferred in the public record. Some of our deals have been where the seller came back to us months and years later because they felt comfortable with us and not the other "pushy" investors who contacted them.

Your contract's most important clauses are inspection period (as long as possible), when the EMD must be deposited if at all, your ability to access the property, any added clauses specific to the property that will protect you against seller claims later that were verbal only.

Visit davedinkel.com for full privacy policy, terms of use, etc.  Be sure to contact us through the website at davedinkel.com if you have questions or concerns ([email protected]).  Results mentioned in this presentation and any video, article, and/or material related to Dave Dinkel and his associated businesses are not typical nor are a guarantee of any earning potential.  No advice is to be construed as legal, accounting, or professional advice EVER.  Please consult related licensed and qualified professionals before taking any action.  No person(s) mentioned in the articles and /or shown on videos received compensation in any form for their opinions.