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Ninth Week – A Deal Is Born

Home » Blog » 34 Weeks Flipping Houses » Ninth Week – A Deal Is Born

These are the results of the ninth week of opening up of my business for you guys to see how my wife and I are building back up to 30 deals a year. If you missed the first post explaining what I am doing, please visit This Post.

These are the things I did this week:

FINALLY! Got Another One Under Contract
Finally, got another property under contract. This one should be a sweet deal. Unfortunately, I won’t be sharing the details of it until after it is sold because I will be attempting to wholesale it first. Don’t want to show all my cards. You understand. I will, however, show the details once I’ve sold it.

This is a case where I did not think the seller would be very motivated being that he already had contractors working on the house. I went by and looked it over and decided on a figure. Honestly, I was ready for him to get angry with my offer, but I made it anyway. He went on to inform me that he had hoped to get X (which was just 10k more than what I was offering). I hadn’t expected it and was very interested in the house at that price.

Just to make it seem more like a negotiation, I told him I would need to go and see it again to see if I can come up to his number. The next morning I was there at the house and so was he. I told him I would come up 5k at most, which was 5k below what he wanted. He told me he would have to think about it.

Here is a very important lesson that everyone should learn. When someone gives you a number that you like right from the get go, do NOT immediately take it (unless there is a lot of competition and you are at risk of losing it). People need to feel like they got the most they can possible get. Sometimes if they don’t, they regret how the negotiations went and can get cold feet and back out of the deal. Even if it’s just a couple thousand dollars or terms, you should really negotiate.

He ended up calling me back that evening and was ready to deal. I tried to meet him right away to get the contract but he was already out of town and would be back in the morning. So I scheduled to meet him first thing in the morning.

The seller didn’t tell me this, but his attorney was to meet us there also. The attorney proceeded to try and negotiate everything, including price, which of course had already been agreed upon. After he talked about all that ‘he’ wanted, I told him I was not there to negotiate. The seller and I had already agreed on the deal and that I was paying for some things that I do not normally pay for.

After a brief spell, he came at me with, “you know, you are not the only person that buys houses.” To which I responded, “And this is not the only house for sale. So I guess we are in the same position, aren’t we?”

After realizing that there would be no bullying, we had a good time. All went well.

Mailed Drive For Dollars Mailing
49 drive for dollars handwritten letters were mailed today.

Sent Probate Letters
Sent out 16 probate letters, but did not get any new probate leads this week.

Airpark Seller Called Back
I had made a pretty low offer on the house that is on an airport. He didn’t take it and said he had higher offers. He called back yesterday and left a message to call him. Thought this was going to be another situation where they call back accepting your offer after some reflection. He instead asked me if I knew ‘Billy’ (real name kept secret), an investor in town. I told him I did not and asked why he was asking me. He mention that good ole ‘Billy’ had offered much more than everyone else and he could not get a hold of him now. This is typical. It’s easy for someone to spout off a number, but when it comes time to follow through, they fall apart and disappear. Please do your home BEFORE making an offer. I guess after he gives up on trying to track down this maker of bad offers, he could call me. Who knows. I’m not going to wait around. But, if he does call me and wants my offer, you can be sure that I will be confident in driving to meet him and signing it up right away.

Went To Abilene To See Properties
Flew with one of our lenders to Abilene to see some of the properties he is working on up there. He’s a pilot and I wanted to go just to go flying. That is one of the best things about being your own boss and setting your own hours. The fact that I was able to get a call this morning and then end up running out to the airport and taking the day off really makes everything worth while. We did end up getting stranted out of town about an hour away due to weather though. Forecast was much better, but didn’t happen. Had to have someone drive out to pick us up. At least we didn’t get stuck in Abilene. That place is about 5 hours away by car. This is why my post is later than usually this week. It’s midnight now and I am just now getting around to it (my excuse for bad grammar, typos, etc. – at least I have one this week).

Marketing

Total Leads This Week: 10

  1. Bandit Signs – 0 – None have gone this week and I’m sure most of the others were removed with the sweep last week.
  2. Yellow Pages – 1 – For a picture of my ad, visit the ‘The First Week’ post.
  3. Buying Website – 9 – None were very good. For a link to my site, visit the ‘The First Week’ post.
  4. Drive For Dollars – 0 – The new letters went out today, so we should have some leads from this next week.
  5. REO – 0 – Nothin’. I haven’t called any in a couple weeks but am supposed to meet up another for a visit in her office (she really just wants to see my youngest daughter again).
  6. Probate Mailing – 0 -Nada, but the new letters were just sent out today.
  7. MLS – Made offers on several that have been on the market a while.
  8. Wholesale Deals – There were some, but they all stunk and I didn’t bother to count them.
  9. Absentee Owner Mailing – Nothing.

Leads Analyzed

  1. Another Separation Situation[Source: Website] 

    Homeowner wants to sell a 3 bedroom, 2.5 bath, 1000 sf house.

    Here are the numbers:

    Asking Price: $Make An Offer
    Amount Owed: $53,000
    Repairs: $Not much – cosmetic (unconfirmed)
    After Repaired Value: $90,000
    Max Offer: $59,000 minus repairs

     
    Seller wants to sell because she is separating from her partner. If the house does in fact need just minimal cosmetic repairs, I might be able to buy this. I told them I would probably be buying right above what they owe. She was really, really anxious about getting rid of the house. She said she would have to think about it as she had hoped to get a lot more. I am following up.

  2. New Construction in Bad Area[Source: Website] 

    Homeowner wants to sell a 3 bedroom, 2 bath 1300 house built in 2009.

    Here are the numbers:

    Asking Price: $60,000
    Amount Owed: $0
    Repairs: $cosmetic (uncomfirmed)
    After Repaired Value: $69,000 Owner Financed
    Max Offer: $35,000 minus repairs

     
    Seller is needs money and wants to sell this house. Sounds like a good house, but its location is not so good. This might make a good owner-finance house (sell side) if it barely needs any repairs. Told him my offer would be in the 30’s. Gave a ballpark because he did not seem that motivated and his asking price was sort of high. He is going to consider something that low and call me. I will follow up.

  3. Small House Weird Situation[Source: Website] 

    Homeowner wants to sell a 3 bedroom, 1 bath, 850 sf house.

    Here are the numbers:

    Asking Price: $I’m Confused
    Amount Owed: $53,000
    Repairs: $cosmetic (uncomfirmed)
    After Repaired Value: $70,000
    Max Offer: $45,000 minus repairs

     
    Caller was not the seller, but calling on behalf of the sellers. He put me on speaker phone and I had to ask them to repeat everything ten times because I could not understand them. Very annoying. Weird situation and I’m not sure if I fully understand. The sellers bought the house to allow the person living there to remain in the house (was getting foreclosed on). Now the sellers are paying $1,500/mo on this house and cannot afford. The person they are trying to keep in the house IS NOT PAYING! AND THEY ARE ASKING ME TO BUY IT AND KEEP HIM IN THERE! WHERE IS THE LOGIC?!?!?! WOW. Not sure how that happened. Too much is owed and I am not spending anymore time trying to figure it out.

  4. Expensive Commercial Property[Source: Website] 

    Homeowner wants to sell a 3 acre commercial lot on one of the best strips of highway outside San Antonio.

    Here are the numbers:

    Asking Price: $1,200,000 (asked what would be the least and he knocked off a quarter of a million dollars – so $950,000)
    Amount Owed: $?
    Repairs: $doesn’t matter
    After Repaired Value: $???
    Max Offer: $??? don’t know

     
    This one got me really excited when I saw it. Through a mishap, I was informed the seller was facing foreclosure and owed $215,000 and that is all they wanted. I would have stopped everything and put that under contract. When asked, the seller said he was in no hurry to sell and the price is $1,200,000. Big difference. This appears to be retail, but I don’t know for sure. If anyone is reading this and deals with commerical properties like this in SA, give me a call.

  5. Out of Town House[Source: Website] 

    Homeowner wants to sell a 3 bedroom, 2 bath, 2300sf, 2002 house in a town 45-60 minutes away.

    Here are the numbers:

    Asking Price: $74,000
    Amount Owed: $55,000
    Repairs: $finish out (built 2002, never finished)
    After Repaired Value: $80,000
    Max Offer: $50,000 minus repairs

     
    Seller lost job and wants to get rid of the house because he can’t afford to finish it. This is just too far and he owes too much. Have to move on to the next one.

  6. Facing Foreclosure[Source: Website] 

    Homeowner wants to sell a 4 bedroom, 3.5 bath, house in a good neighborhood.

    Here are the numbers:

    Asking Price: $220,000
    Amount Owed: $210,000
    Repairs: $nothing
    After Repaired Value: $225,000
    Max Offer: $146,000 minus repairs

     
    Too much is owed. Next.

  7. Another One Outside Town[Source: Website] 

    Homeowner wants to sell a 3 bedroom, 2 bath, 1700sf house outside of town (Pleasanton).

    Here are the numbers:

    Asking Price: $Make An Offer
    Amount Owed: $43,000
    Repairs: $very minor (unconfirmed)
    After Repaired Value: $???
    Max Offer: $??? minus repairs

     
    Seller is facing divorce and has no job. Things just aren’t going well for him. Passed this one on to a wholesaler because it is just too far away and the numbers weren’t looking beneficial.

  8. Townhome in “Really Bad Neighborhood”[Source: Yellow Pages] 

    Homeowner wants to sell a 3 bedroom, 2 bath, 1700sf townhome in gangland.

    Here are the numbers:

    Asking Price: $Make An Offer
    Amount Owed: $0
    Repairs: $A LOT she says
    After Repaired Value: $35,000
    Max Offer: $10,000 minus repairs

     
    Seller is older and has moved in with her children in Austin. She kept mentioning how bad the neighborhood is and is getting. The house needs lots of repairs. Sounds like a bad combination. Next.

  9. Nice House, No Hurry[Source: Website] 

    Homeowner wants to sell a 4 bedroom, 2.5 bath, house in a great neighboord. The numbers don’t matter because they just want retail price, cash, as-is, close quickly. Yeah, right. Didn’t spend more than 3 minutes on the phone and even that was too long. Next.

  10. Owe Too Much, Nice House[Source: Website] 

    Homeowner wants to sell a house in a nice neighborhood. Had tenant that moved out and cannot afford 2 payments. Owe $150k and worth $160k. Might be a good sub2 for somebody, but not me. There needs to be room in there, even if sub2. If you buy sub2 without much equity, give me a call. Next.

Summary

Not as many leads this week. But I did get one under contract this week. So, even though I only had 10 leads this week, this is a better week than the last one.

Plans For Next Week

  • Make Lots Of Offers
  • Put Out More Bandit Signs
  • Get More Probate Leads
  • Get Another One Under Contract

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Comments (29)

  • John

    Danny
    What do expect to make on that wholesale deal?? Also, what marketing source brought you the lead?
    Thanks

    John

    • Danny Johnson

      John,

      I hope to make as much as $50k by selling with a little clean up. I am going to close on it before attempting to sell. When there is the possibility of a spread like this, it’s good to close on it before attempting to sell so that you don’t run the risk of someone going around you and making a deal with the seller. There are ways to avoid that, but why not avoid any kind of problem, but just waiting. Plus, the buyer will most like be someone that wants to fix and live in the house. Closing is in a little over a week. This one was from a probate lead.

  • John

    So kind of like a “wholetail” deal?? Tom Torrant had one on his site that he got from direct mail. He said the ARV was $220k, bought it for $110k and planned on selling it for $145k to an owner occp. He also closed on his as well, then put it on the MLS.

    John

    p.s. Can you give the ARV and what you bought it for?

    • Danny Johnson

      John,

      Yes. I will give the details after the deal has been completed.

  • John

    Good luck…..hope you make a nice profit!

    John

  • John

    Danny,
    I know you don’t want to give details number wise, but how did you present your offer to the seller and get it at a great price? Did you just throw a number at them and they took it? This is where “the rubber meets the road”……alot of people would be interested in the negotiation side of the deal.

    John

    • Danny Johnson

      John,

      You are absolutely correct. I should have gone into more detail about the negotiations. Just a little too tired when I was putting the post together. I have updated the post to include some more details. Enjoy.

      Thanks.
      Danny

  • Don

    John,

    Congrats on your property under contract. I have a property under contract as well. You mentioned that you are going to purchase the property then sale. I assume you will list the property in the MLS. How do you present the offer to investors when you don’t purchase first? I’m considering offering to investors first. If I don’t get any bites in the next couple of days purchasing the property and listing in the MLS. Your thoughts?

    • Danny Johnson

      Don,

      I’m assuming you are asking me.

      I am going to do some clean up and minor work to it and attempt to sell without a Realtor first. Craigslist, sign in yard, etc. If after about 3-4 weeks, we don’t have any serious buyers, we will probably list it with our Realtor.

      When offering up properties before I close on them, I usually do several things (though the process is the same regardless. you just have some differences regarding things like putting a sign out front and difficulties if they still live in the house):

      1. Call investors that are looking for a property like the one you are selling. You will already have to know who they are. If you have one that you think would fit better than the others, give them 24 hours to look at it and let you know if they want it. Most investors hate competing with dozens of other investors. When you send out a mass email to a lot of investors, some of the serious ones won’t bother with it, unless it is a super great deal. You can find people that are interested in a given area by driving for dollars and keeping an eye out for houses being rehabbed or For Rent signs.

      2. Email your buyers list offering up the property.

      3. Ad in the local pennysaver and/or newspaper and on craigslist.

      4. Handwritten signs in the neighbor posted on street corners (don’t overdo this by concentrating too many in a small area).

      5. List in MLS.

      Offering up a deal is really a great way to grow your buyers list as well. You are more likely to have serious buyers call you. The ones that are the best are the ones that don’t ask a million questions and are decisive.

      Regarding buying and listing the property if after a couple days you don’t have a buyer: Be careful. Make sure you have a true deal. If you inform a lot of investors about the deal and no one is willing to buy it, and you allow people to make an offer anyway and none of them even come close to what you have it under contract for, you might want to reconsider buying it. When an investor tells you they are not interested, ask them at what price he would be interested. If you have it under contract for more than most people are telling you, you might want to try to renegotiate the deal with the seller to get it for below what they were telling you. Hate doing this, but it is much better than walking away from a deal. If you do not have a deal and end up having to buy it and list in the MLS you might end up looking for the greater fool. You don’t want to do this. The profit is made on the buy side. Do NOT overpay for a property.

      If you’ve done your due diligence and feel that you are right about the numbers, you can disregard this warning. Get that deal out to as many investors as possible.

      Danny

  • Bilgefisher

    Danny,

    Thanks for the update on the negotiations. Some very helpful negotiating tips in there. Congrats on such a great deal. Hope all follows through for you.

    Jason

  • Don

    Thank You Danny !!!

    I will take your information and run with it. I really appreiciate the valuable information.

    Don
    Washington, DC

    • Danny Johnson

      No problem, Don.

  • Elizabeth Blazina

    Danny,
    A newbie here and just wanted to say Thanks for sharing. This has become my breakfast for champions in the mornings. I was hoping you might touch upon how you set up and prescreen your investors when you are wholesaling?
    Thanks again
    Liz

    • Danny Johnson

      Elizabeth,

      No problem. I should switch to blogs for breakfast. The breakfast tacos I’ve been having are not doing me any favors.

      When prescreening investors, I generally just want to make sure that they have the ability to close and are decisive. If an investor asks a bunch of questions about things that they can find out with their own due-diligence, I won’t take them as seriously. If I know that they have either bought from me or someone else, I will be more interested in dealing with them. One of the quickest ways to know whether they are serious is to ask how quickly they can close it. They should be able to within 1 or 2 weeks at the most. They should being paying with cash or hard money.

  • Aaron Schwartz

    Awesome blog! I’m an investor in Abilene and was curious if your lender who has properties in Abilene, lends in Abilene? Thanks

    • Danny Johnson

      Thanks, Aaron.

      I don’t think he does. He had bought a package of notes a while back. I’ll ask and let you know if he does.

  • Larry Copling

    Danny:

    For those “experientially challenged” readers among us, can you take a moment to explain the difference in exit strategies? For example, if you “bird-dog” the property, what do you do to the property, as opposed to “wholesaling” it, or adding it to your portfolio (buy/hold with tenants or tenant/buyers)?

    Great information here, my friend!

    • Danny Johnson

      Thanks, Larry.

      Birddogging is where I just pass the lead to another investor. I do not visit the property or make any offers. I simply tell another investor about the lead and give them the sellers contact information if they are interested in it.

      Wholesaling is where I put the deal under contract (and close it sometimes so that I would then be the owner but do not do any work to it) and then sell it ‘As-Is’ to someone else that will then fix it up and do with it what they want. So wholesaling can encompass a lot of different strategies but mainly involves either assigning contracts or buying and not doing any work or doing a little work to the house and selling it quickly to someone else at a discount.

  • Nate K.

    Dumb question, what is a probate letter?

    • Danny Johnson

      At least you asked. Some people don’t know and still don’t because they didn’t ask.

      Probate letter is just like a letter you send to owners of vacant and/or run down properties that you find driving for dollars or from absentee owner lists. The difference is that you are targeting the heirs of a recently deceased person. So the letters should be respectful of the fact that they just likely lost a loved one. You are there to help them if they need it by being able to buy any property the estate may wish to sell.

  • chris

    “I put it in contract”
    If you find a seller who is ready to sell, how do you “put it in contract” — I am talking about the mechanics, paperwork, etc.
    btw I must say you are very generous with your sharing of your experiences — you could easily sell this advice for profit. But you must do it because you want to be helpful and you reallt enjoy sharing with aspiring venturers. Thank you!

    • Danny Johnson

      Oh. Put it under contract. I saw your ‘put it in contract’ and wondered why I would have worded it that way.

      Anyway, you put it under contract by filling out a purchase and sale agreement with them. You can either use your State’s approved contract or a different one if you want. I mostly use a one-page contract that I have. Once the seller signs the contract with you, you take it to a title company and ‘receipt’ it with them. You pay whatever amount of earnest money you agreed on in the contract to the title company. You now have the house “under contract”.

      Let me know if you have any other questions. Thanks for commenting.

      Danny

  • Nicholas

    Danny,
    This is a great blog, I really enjoy it. How do you figure out the repair costs? Are you asking the homeowner on the phone what needs to be done and then estimating repairs based upon what was required on other jobs? Or are you visiting each house to gauge repairs?

    Also, what is the process to close a contract w/o a realtor? Do you use an attorney or other professionals?

    Thank you.

    • Danny Johnson

      Great questions, Nicholas.

      I ask them what it needs on the phone just to get a really rough idea of whether there is room with what they owe and what I need to buy it for. If a deal is possible (they owe low enough to have to room to sell for what I would likely need to buy for), I go to see the house and work up my repair estimates there.

      To close without a Realtor, I just get a Purchase and Sale agreement signed with the seller and have that taken to a title company. They handle the paperwork and the closing. I always get title insurance.

  • Nicholas

    Thank you!

  • Mike

    Danny, Danny, Danny!!! Man I thank God for you and all that you do! I thank you and your wife for all that you guys are doing. Question… How did you find a realtor to help you with comps and DOMs and cash buyers? I’ve reached out to numerous agents and they don’t want to help! I’ve tried to explain how it all works and it just seems so foreign to them, mind you these are agents that work with investors. Any advice?

    • Danny Johnson

      Hello, Mike.

      Thanks for the appreciation.

      The key is finding agents that are already working with other investors or have worked with them in the past. I would call several offices and ask to speaking to one that works with residential real estate investors.

      When talking to them, let them know that you intend to do a lot of marketing to sellers and the vast majority of the leads will not have enough equity for you and you will be happy to refer the Realtor to them for a possible listing. Find a way to provide value for them so that it will be profitable. Their biggest concern is that they will be working for nothing.

  • jessica

    hi Danny, i was wondering if you could explain a little about the buying process for you. we are looking to start marketing to owners and are unsure of how to go about getting it under contract and who takes care of the legalities, etc. Where do yo get the paperwork to write the offer with signatures, etc., what do you do next? Title agency takes care of the rest or a real estate attorney? If you could just outline the process that would be great!

    • Danny Johnson

      Jessica,

      Many investors just use your state’s real estate commission contract. For Texas, if you search for ‘TREC forms’ (Texas Real Estate Commission), the search results show a page with all of the standard forms. The typical one used is the Residential Resale 1-4 Family contract.

      You sign as buyer (or your company) and the seller signs as seller.

      You take the contract along with a check for earnest money to a title company and ‘open escrow’ or ‘receipt’ the contract.

      The title company then takes care of title search and preparing for closing.

      Hope this clarifies things for you.

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