need help - Posted by Rachel

Posted by Ed Garcia on January 26, 2000 at 09:52:01:


That depends on you and your relationship with your appraiser.
Title companies don’t charge, it’s a service that they provide.
I know that I have curtain appraisers that I use that would not charge me,
because once again we have a working relationship.

If an appraiser sees that you are going to be a good source for business,
I would think that they would assist you to get your business.
If an appraiser thinks that you’re wasting their time and not giving them any
business, then they would most likely charge you.

Obviously the thing to do is to go out and find an appraiser that will work with
you. This business is constant negotiations, so you may as well start with your

Ed Garcia

need help - Posted by Rachel

Posted by Rachel on January 23, 2000 at 11:40:09:

I’m looking at a lease option of a mobile home. What information do I need to know besides asking price, comps, condition of property?
They’re asking 64,900 and want $1250 a month if I lease purchase it. Do I need to know about their mortgage?
How can I make money on this deal?
Thanks to all for all your straight forward answers until now. This site is just what I’ve been looking for.

Re: need help - Posted by Ed Garcia

Posted by Ed Garcia on January 23, 2000 at 12:47:44:


When you put ( Need Help) on the board, I’m sure many will come to the rescue,
as I have attempted.
However Rachael, I’m sorry to say that you are not giving us enough information.

You threw up there price and payments, which doesn’t mean anything to US.
We don’t know the area or market of where this acquisition is.

Were not sure what your purpose is for this purchase, at first,I had a feeling you’re looking
for a place to live, until you asked, How can I make money on this deal?

I’m afraid my recommendation today Racheal, is for you to learn how to recognize
a deal. If you’re not sure what to look for, or how to structure how your deal, then let me help you.

First, how much do you want to make?

Second, can you make it on this deal?

Third, if the answer to the second question is NO, then is there something you can do to make this
Deal a deal. (Now were talking about structuring)

Asking for Price, Comps, Mortgage balances, etc. is just information you need to analyze the deal.

Rachel, I hate to do this, because I have already done it twice this last week. But it’s obvious that
you don’t know where to start. I’m going to tell you what advice I give to a newbie .

The first is to evaluate how much time you are going to be able to commit to Real-estate? If your
approach is hit and miss, so will be your result.

Second: Go to the street. It is the best teacher. Rather than talk about doing
deals, reading in the library, getting courses, JUST DO IT.

You’ll find in the long run, the street is the best teacher. Not only that by getting
out an doing it, you’ll learn your MARKET, meet people to build a NETWORK, learn
the demographics as well as the geographics of your area, and of course you
would have over come the biggest obstacle in getting started, PROCRASTINATION.

We need to do what we call, penciling out a deal. When doing that, we ask ourselves a
battery of questions necessary in structuring a deal.

I’m going to give you 5 steps to get you started.

(1) How much do we want to make?

So many times I hear someone act as if they are afraid of loosing a deal because of the
profit they put into it. Forget about it. I’d rather be sorry about the deal I did not make,
rather than the one I did. The profit is what protects you in a deal. Don’t be afraid to make it.

When doing a deal I want to make at least 30% and believe me when I tell you, when I structure
a deal with 30% in it, I never get it. Some how the profit always dissipates, even after I thought
I figured it to the penny.

Would I do a deal with less profit? Yes but I would do it as a flip, lease option, or as a leveraged
deal with positive cash flow.

(2) Determine the Value of the Property.

The next thing I must do is determine what the property is worth. The obvious thing to do, is comp
it. Don’t let the seller or real-estate broker tell you what it is worth. Get it comped yourself.

(3) Deferred maintenance.

Usually I figure my profit after taking off the deferred maintenance, otherwise it distorts my
profit. So it must be figured in the beginning to determine your profit.

(4) Game plan.

What do I want to do with the property? Do I want to fix it and sell it? Do I want to keep it
long term or short term? When I buy a property, I have a plan for it. And usually I buy it with that
plan in mind. This part is so important, I’m going to go into more detail by giving you an example.

Remember, you make your money on the buy.


Each deal speaks for it’s self. For example, if I bought a house for lets
say $50,000 and had to put $10,000 into it for fix up. I’m in this deal
$60,000. Now what would that house have to be worth in order for me
to feel comfortable to buy it, and debt service it on my line of credit.

$70,000 ? No I don’t think so. I have no room in this deal for error.
What if after a month or two I don’t sell it ?
Now remember, we can play the what if game all day. I can create a fast
Sale for the purpose of this posting to make myself look good, but that’s
Not the answer. So remember we have to always be careful with
hypothetical questions and answers. The profit structure on this deal is not
good enough for me to do the deal.

$80,000 ? Were getting better, but No. I have to keep in mind that things
can go wrong with my deal. What if I sell it after 2 months, and then the
sale falls through after being under contract for 45 days because of financing.

Now I have had the property for 31/2 months, and have to put it back on
the market again. Also what if the market changes or slows down ?
Even though I show on paper that I have a $20,000 profit, that’s not so.

For the fun of it, lets take this so call $20,000 profit and structure a
Game Plan around it.

(1.) I plug in 6 month worth of debt service on my deal. I’m in the
deal $60,000. Interest, depending on the interest of your credit line,
Let say for the benefit of our example is 9.5%. Our payments would
Then be $475 per month. 475X 6 = $2850.

(2.) What ever the market value you come up with, always cut it 5%.
Because realistically, the potential buyer is going to want you to
Discount your price. Now if you don’t have to, great. But lets face
It. If you were trying to sell it for $80,000 and someone offered
You $ 76,000, you know you wouldn’t want to wait for another
Buyer. You would still be debt servicing the deal. With you luck,
You wait another month or two and the next buyer would make
The same offer. Terry Vaughan will tell you, that the first 10% of
a deal is water. I agree with Terry, but for the purpose of this
deal we’ll just keep it at 5%. So lets take off another $4000.

(3.) I always plug in a realtor. Now I know that there are a lot of
Geniuses out there that don’t need them. They are so great that
they can sell the property themselves. Great, you plug in a
Realtor. 76,000 X .06 = $4,560.

Lets recap. A sale of $80,000, gives us on paper a $20,000 profit.

-$ 2,850 Debt service
-$4,000 5% Discount
-$4,560 6% Sales commission.

Potential Profit $8,590.

As you can see the profit dissipates quickly. And personally I don’t think
It’s enough to take the risk your taking with your line.

How about $90,000 ? Now all of a sudden the deal can make sense.
We have between a $17,500 and $18,000 profit.

Lets look at our LTV (loan to value). 60,000 divided by 90,000 =
67% LTV.

So you see the deal speaks for it’s self, but the structuring of a deal with a Game Plan is what will
let you know if you should do the deal.

(5) Financing.

How am I going to take my deal down? An I going to create a seller carry back, and use a lender
to give some money to the seller? Will the seller carry back the whole deal? Will I have to buy it with
a combination of down payment and financing? Or will I pay cash and then refinance it later, getting
all of my money back.

These are just a few basic fundamentals of doing a deal. I hope this is some help to you.

Ed Garcia

Re: need help - Posted by rachel

Posted by rachel on January 23, 2000 at 13:10:57:

Hi Ed Garcia,
I appreciate your taking the time for answering my questions. I am a beginner and inexperienced as you guessed. But I am not just reading about it.I am going out and seeing properties for the past few months. I have not been successful an making a deal yet. I’ve been calling on ads and working with realtors. I do not want to invest my own money. My objective is to find good deals and to asign them or flip them. I did look at comps on that mh l/o. I’ve been evaluating lots of deals with regular purchases. My question is regarding a l/0 do I need to know the same information about his mortgage just as if I was buying it? Also when I talk to the realtor should I tell them I’m an investor and I want to lease the property to someone else?
I’m also wondering, whether I should get involved in a property that’s commercial use if the owner is willing to finance? What about mixed use?

Re: need help - Posted by Ed Garcia

Posted by Ed Garcia on January 23, 2000 at 14:22:56:


If your desire is to do lease options, and flips, there is nothing wrong with that.

Rachael, to me a Lease Option, is just another source of financing. I like it
because as you said, you don’t have to use much if any money down.

However I have found in the past that there is a reason to the madness.
As a rule, a lease option is an instrument used on either on a property that is not
that marketable, or a property that does not have that much profit in it, or both.

Remember one thing Rachael, I’m talking about the rule, not the exception to the rule.
I’m sure from time to time someone hits a home run.

In any event you need to understand profit margin.

Rachael’s question:

My question is regarding a l/0 do I need to know the same information about his
mortgage just as if I was buying it?



The more information you have when doing a deal, the more ammunition you have in
doing your deal.

Rachael, most people on this board see me as a finance cat. They think that I wouldn’t
want to do a lease option or flip. That’s not true.

I’m a DEAL MAKER. To me the deal either speaks for it’s self, or I see a way that I can
restructure a deal for the maximum profit. Most of us have a favorite way we like to do
our deal. I like to offer CASH. It usually gets me to the bottom line in a hurry. But there
is a lot more to it than what I just said, and I’m sorry to say that today I don’t have time
to go into it.

Rachael’s question:

Also when I talk to the realtor should I tell them I’m an investor and I want to lease
the property to someone else?


That depends on you, and your relationship with you realtor. Some realtors will get turned
Off. That’s good to know so you don’t waste your time with such a realtor.
Many of my friend have realtor friends who chase deal for them, as well as other sources.

Rachael’s question:

I’m also wondering, whether I should get involved in a property that’s commercial use if the owner is willing to finance? What about mixed use?


Rachael, at this time I don’t recommend it. You have to learn how to walk before you run. You need
to not only learn the basics, but to master them before your ready for bigger and better things. This is
my opinion.

I’ve got to run for now, so take care Rachael,

Ed Garcia

Re: need help - Posted by Dale Spence

Posted by Dale Spence on January 23, 2000 at 19:35:48:

In your first response you mentioned getting comps on the property. What is the best source for this info?

Re: need help - Posted by Ed Garcia

Posted by Ed Garcia on January 24, 2000 at 24:29:17:


That depends on what part of the country your from. In California, we get our
comps from the title companies. Other parts of the country, they use MLS.

I think if you contact an appraiser and ask him what he uses. That should steer
you in the right direction. As a matter of fact, now that I told you that, I remember
many of my associates from other states get their comps from appraisers.

Ed Garcia

Re: need help - Posted by brandi

Posted by brandi on January 25, 2000 at 23:25:34:

Mr. Garcia, in regards to getting comps, when I call an appraiser what do I actually say to them and will they charge me a fee?

B.Del Bosque