Commercial Rehab Purchase, Financing, and Deal Structure Training!
This is a detailed Training and Case Study on a Commercial Rehab Deal. We go through commercial deal valuation, deal structure, commercial rehab financing, various Rehab Incentives that you might be overlooking, and how they turned this deal from a total lemon into a home run! Watch, take lots of notes and share with your friends!
Here’s just some of what you’ll learn about investing in commercial property:
- How I bought a commercial property with seller financing at only 4% interest and got 97% of my purchase price funded!
- How to determine value (especially ARV) of commercial properties
- What “cap rates” are and how they’re calculated
- How to find hidden deal incentives that can be a game-changer for your deals (you may be leaving a lot of money on the table!)
- How to make home-runs out of real estate deals that other people pass on
- How to use seller financing + bank financing for short term and long term deals
- What “market cap rates” are and how to use them for valuation and to get financing
- And much much more
Video Transcript Below
So why do I do these case studies? You know, I love to record these. I don’t do them often enough because I’m so busy rehabbing and building new projects right now, but I do these case studies for a couple of reasons. One, I want to educate for free. There is a lot of information out there that’s being sold. There is a million different wholesaling courses. Everybody seems to want nothing but money, money, money, which is absolutely fine. There is nothing wrong with that. But because we are primarily in the business of selling software, my goal is to provide the education for the most part for free and then as a way to pay back our software users and build the community. So the second goal behind these case studies is if you have the free version of our property flipping software, I want you using it. And if you can’t use software for wholesaling or rehabbing if you don’t understand what wholesaling is or how to do real estate deals.
So in order to let you use the software and in order to allow you to maximize the potential of the software that we provide, I want to make sure that all of our users, all of our viewers are educated about the business itself. So if you have the free version of our software, I want you to be more comfortable with it. I want it to become a regular part of your business. If you don’t have our software yet, I’m going to give you the link to sign up for a free account at the end of this video. And then of course if you don’t have the premium version of our software yet, I want to show you the the benefits of having that membership because it’s very powerful. So those are my three goals behind doing these case studies. So now we have that on the table. And my promise to you is any of my case studies that you will watch, and if you’ve seen any of my past case studies, you will know this to be true.
They will have a ton of useful, actionable content for you. None of these are meant to be sales pitches at all. So my goal is every case study you watch for you to walk away with a ton of great information. So in this particular video and in this case study, we’re going to talk about one, what is wholesaling? Terminology that’s important for you to know and to use when doing wholesale deals. And then we’re going to go through a detailed case study and we’re going to talk about how to determine the right offer for your deal, how to calculate your end buyer profits, and finally, how to market and present that deal in order to get it sold quickly and for the most amount of money.
So let’s talk about wholesaling. Wholesaling is a simple business. I’m actually amazed how there are courses for $1,000 that sell about what wholesaling is because wholesaling is really a simple business. Here’s how you wholesale. You find the deal, preferably an off market property that needs some work. You find it at a discount, today’s market value. Then you put that deal under contract with the seller and then you assign or flip the contract to another buyer who closes on the deal. And that’s it. It’s really that simple. That end buyer then goes to the closing table with the seller. And usually at closing, your assignment fee or your profit gets paid to you. It is really that simple. So you need to have good deals and they need to have reliable cash buyers for this business to work. And that’s it. At the end of the deal of closing, you’re going to collect your assignment fee.
So now if you need a further explanation of wholesaling, you know what? Let’s do this live. I’m going to give you a link. Don’t go there now. This is a free course that I’ve put together and I’m continually adding content to it. RehabValuator.com/wholesaling-101. There you go. This is an entire free course that I’ve put together about wholesaling. So and in that course I go through a lot more in detail of every step of the whole selling process and how you can make very good money with this business.
Okay, let’s talk about terminology that you need to understand when doing this business and we’re just going to run through the most important ones. So after repair value, ARV, by far, probably the most important term you need to understand. So what is ARV? Basically, after repair value is what will this property appraise for once the renovations that you or your end buyer plan to do are complete. This is based on the recent comparable sales day data in the area.
So for example, you buy a property in rough shape, you buy it for $120,000 but completely renovated houses like this one sell for 200,000. So $200,000 is the after repair value. You need to go and look in this particular neighborhood for the past, let’s say, six months. Look at houses of the same shape, the same number of bedrooms, baths, square feet, and same finishes. What have they actually sold for? Those are recent comparable sales. Don’t look at what properties currently are on the market for. Don’t look at pending sales. Look at actual sales, the only relevant number here are real transactions that have taken place. Comparable sales data can come from realtors, from MLS, go the Zillow, go to Trulia. There is many places now where you can obtain reliable comps. Zillow used to suck. Now Zillow actually has reliable comparable sales data.
So you no longer need to just rely on the realtor. Next is percent of ARV. This is a very important metric and term that you need to understand. This is the investment criteria, either yours or your end buyers, the percentage of ARV dictates the desired profit margin or sweat equity that you are your own buyer need to have after the deal is done. It’s the maximum total cost basis of after repair value. So for example, if I say I am looking for deals at 70% of ARV or below, that means that my total cost basis between buying the deal, rehabbing it, closing costs, holding costs, financing costs, my total cost basis must be less or equal to 70% of the after repair value. So in the example above, if the after repair value is $200,00 my maximum cost basis can be no more than 70% of that, which, come on all you math whizzes, $140,000 and I’ll show you a better numerical example of this in the case study that we’re about to go through.
But this is a very important number to understand and this criteria, if you follow it, it’s going to ensure that you don’t offer too much for your deals or putting deals under contract at the price where you can’t sell them to your end buyers and make money with them. Next are comps and we just talked about the recently, comparable sales usually refers to comparable sales versus the after repair value. You need to look at the last six months of houses in the same area with the same finishes, same square feet, bedrooms, baths, et cetera. I like to use the dollar per square foot metric because you’ll never find two houses with the exact same square footage. So if you determine that houses with these finishes in the same area have recently sold for an average of let’s say $150 a square foot. Now you can use that $150 a square foot metric to calculate after repair value on your house using the exact square footage of your house.
It’s better than looking at things in absolute dollar values. You know, again, I can’t stress this enough. Make sure you’re looking at actual closed sales rather than the houses in the market or pending sales. Next we have assignment of contract. This is an actual contract that acts as an addendum to the contract at purchase between you and the seller. It’s a second contract between you and your buyers. So in wholesaling you’ll have the purchase contract, which is between you and the seller, and then you’ll have an assignment of contract that signs that contract from you to the cash buyer. And this basically allows your buyer to close directly with your seller, taking you out of the middle and then you get paid an assignment fee. And if you are one of our Rehab Valuator Premium members, one of the bonuses that you get with your membership is a copy of a purchase contract and the same contract that you can use in your own business instead of paying your attorney hundreds of dollars to create them from scratch.
Next is the assignment fee. This is your wholesale fee that you tack onto the contract price between you and the seller. So if you put the property under contract for $50,000 you’re going to market it to your cash buyer for 55 or $60,000. That 5 or 10 grand is your assignment fee, right? So here’s another example. If you contract to purchase a property from seller for $100,000 and want to make 10, then you’re going to market the deal for 110 and that 10 is your assignment fee. Your cash buyer pays your seller $100,000 and $10,000 assignment fee gets wired to you. So now let’s go through a case study. You’re ready. Let’s say you find an off market house from a marketing campaign that you launched. It’s three bedrooms, two baths, 1,300 square feet. You’ve determined based on the recent comparable sales that the after repair value is $200,000. The house, after you went and looked at it, you decided it needs about $30,000 in repairs in order to sell it retail to new owner occupants.
And you’ve talked to a couple of real estate cash buyers with whom you’ve built relationships and you know that they’re buying in that area and you know that they’re looking to be at no more than 75% of the after repair value. Now you’ve talked to the seller and the seller says, “I need at least $140,000 for this house right now.” What do you do? Do you accept that $140,000 price? Well, here’s how you would figure that out, okay? When you log in to Rehab Valuator, whether you have the light or the premium version, you’re going to end up on the save deal screen with the orientation video for you to watch. So you would go to the quick offer calculator here at the top, and this is a standalone tool that instead of you having to use your calculator or crunching numbers in the back of a Napkin, you can very easily input some information here and that will give you your maximum offer.
So if we remember correctly, in our case study, after repair value of this deal is $200,000. The investment criteria is 75% of the after repair value. The deal requires $30,000 in repairs. And then I like to assume, you know, a couple of thousand dollars of closing costs and then to resell the house, it’s going to cost 6 to 7% if you’re using an agent. So I always assume that my wholesale buyer is going to be using a real estate agent, sellers and buyers agent to sell the house. So I plug in 6% for closing costs to sell. And usually, I actually like to plug in 7, in case there’s going to be any buyer concessions. And then let’s assume another thousand dollars for holding costs. And as a wholesaler on this deal, I’d like to make at least a $10,000 wholesale fee. So very quickly, you get your max offer right here.
$93,000 in order for this deal to work. If you’re wholesaling, the most you can pay is $93,000 so in our case study, our buyer wanted … Or I’m sorry, our seller wanted $140,000 for this house. Can we afford to pay him that? No, absolutely not. In order to make this deal work, the most you can pay is $93,000. Now, if you’re evaluating this deal for yourself, not your wholesale buyer, you would take out this fee and there you go. Your max offer now is $103,000. Right? But let’s plug in the wholesale fee here. And you’ve got scenario two and scenario three here. So you can use this to enter additional deals, or you can just plug in some other scenarios and see what happens, right? So if our repair estimates maybe are too conservative and only takes $20,000 to repair this house, then your max offer now all of a sudden becomes $130,000. Right? Et Cetera, et Cetera. And you can play with all of these variables and see how that affects your offer.
All right, so now let’s say you go and you negotiate the seller down to $93,000. You put this deal under contract, what do you do next? Well, now you want to effectively market this deal to your cash buyers quickly. So here’s what you would do. You would go to new deal and this window pops up and you would quickly input some information and you click save. And now you enter the information from the previous screen. So you would type in … Now you’re marketing this to your wholesale buyers. So you got this deal for 93, but you’re tacking on a $10,000 assignment fee. So here you would actually type in $103,000 because that’s what your end buyer is paying. Closing costs, we said $2,000. And again, if you’re not sure about any of this, you click on this little video icon and you’ve got tutorial on every step of the software here to guide you through this process.
But it’s very easy. Holding costs, we said would be $1,000 and we’re going to assume just a regular cash deal, $200,000 after repair value and 7% cost of sale, and the rehab costs $30,000 and our projected resale price is 200,000 same as after repair value. Now the reason why you’re giving an option here to enter a different resale price is maybe you want to be conservative and you want to say, my cash buyer is going to want to get a quick sale off and they’ll sell for 190. Well, let’s assume we’re in a solid market and we can sell for the after repair value. Well immediately you see that your projected profit for your end buyer is $50,000 and assuming it takes them two months to rehab and then another two months to sell, they’re going to make a 36% return on their cash.
If they do the deal with cash and on an annualized basis, it’s over 100%. Right? So this is a very quick sanity check for you. Is this a good deal for my buyer? Now from here you would click view reports and if you have the free version of the software, you would click on project summary and you can generate the summary of the deal. Now, and you can use this as your marketing sheet, that’s not very compelling, but you can certainly send this, you know, I want you using the software. So even if you just have the free version of the software, you can take this project summary and you can post it to Facebook. See, it’s this easy, right? Deal at 75% of ARV on Jeff Avenue in Richmond, click link below. And so here’s what happens. I’m going to show you, you know, because this is a test deal.
I’m not going to post this publicly, but this is what happens. Let’s just say only me. All right, and you’re going to share this link on Facebook. And if you go the Facebook, this is what it looks like. It now appears on your timeline right there. Boom. And then when somebody clicks on this link, they go directly to this marketing summary and then they can contact you. Here’s where the software gets really cool. And then in addition, by the way, to Facebook, you can post us to Twitter, Linkedin, and 300 other methods found here. Or you can click get unique link, copy this link and then simply email it to somebody and then they’re going to pull up that link and see the summary. Do you see how easy marketing your deals becomes? But here’s where the software gets really powerful. With the premium version, you can click marketing sheet, flip, exit, and you now have this one page marketing flyer that you can create.
So offered at 103, won’t last, call me ASAP. And then you just type in some information about the deal and all of this is automatically generated for you. Now all you have to do is just insert some pictures. So let’s look at how easy uploading pictures is. All right, let’s go to Dropbox, real estate stuff. Pictures, let’s find … All right, check this out. Boom. Look at how quickly uploading pictures in bulk is. And here’s what you do. You upload these pictures really quick. This is a property that I actually rehabbed recently. And then you’d do the same thing. Click Facebook, great flip opportunity at 75% ARV, check out the link below and then you share link and this is what it looks like and now … And you can share this, you can post this to different groups on Facebook. Somebody clicks on this and this is what they see, a one page marketing flyer like this that shows your buyer exactly all of the information they need to see.
Look, here’s the offer price, here’s the required repairs, here’s the total projected cost basis. You can see the total projected cost basis is only 68% of after repair value, flip profit will be 50,000 et Cetera, et Cetera. This is how easy this is, and by the way, this is 68% because the projected cost of sale is taken into account here. So projected cost of sale is actually 7%. 7 plus 68 will be 75, which is what we were striving for. So I hope that makes sense. Now again, you’re not just sharing this to Facebook. You can post this to Twitter, post this to Linkedin or you can simply click get unique link, take this link and email out to all of your buyers. Additionally, you can click show PDF and create a PDF presentation out of this and then you can print this out and physically hand this to cash buyers in different real estate investment clubs.
Or you can save this as a PDF and email this as an attachment to your buyers. But this is all about being smart and intelligent when marketing your deals and giving your buyers all the information they could possibly need. So how do you give your buyers all the information they could possibly need? Well, you would click view reports and click full presentations for flip. And now instead of a one pager, you’re generating a full scale presentation. Check this out, here’s your cover page, and then you can actually upload your company logo here. Then you’ve got your one page marketing flyer, you’ve got a cashflow summary that shows your cash buyer exactly how the deal will be laid out month to month. You’ve got a comparable sales report where again, you can upload pictures and then you’ve got an additional pictures page. And then this is what this presentation looks like. This is your cover page. This is your marketing sheet that gives all the relevant numbers on your deal and shows how profitable this deal will be for your cash buyer, cash flow summary, comparable sales report, and then additional pictures.
And you can create this in literally a matter of minutes and you can print this out or again, you can post this to social media and get your deal sold in minutes of putting it under contract. It’s really that easy. So hopefully you found this case study to be valuable and I hope you took a lot of notes. Here’s what I would like you to do next. First of all, click the share button above or below this video, wherever you see it. And if you think this will be valuable for other people, you know, please share it on Facebook or Twitter and other social media and help spread the word and get this education out to people. Leave me comments below the video with any questions, thoughts, et Cetera. I love hearing from you. I love to get your feedback. What other case studies should I record? What topics are you having trouble finding information on? If you don’t have the free Rehab Valuator Lite software yet, go to www.RehabValuator.com and set yourself a free account, set yourself up with the free access to the software.
There is no strings attached, even the free version of our software is fully functional. You can use it for as long as you like and it’s going to see the massive, massive amounts of time. And then of course, if you’re already an account holder, it’s strongly, strongly urged that you do upgrade to premium and get the full ability to market your deals, raise private money. There is a whole separate marketing component there that’s completely geared towards hard and private money lenders. You can manage your rehab projects with the premium software and there is going to be all sorts of bonuses when you operate as well.
And that’s it. Thanks for watching. I’ve got more case studies coming out, and again, if there’s particular topics that you want to get educated on or you think there’s information lacking out there, leave me a comment below this video on and let me know. I check these comments on a regular basis. All right. That’s it. Thanks for watching.