A snow day was followed by a day at the day-gig, which in turn was followed by a sick day.
Sick days are okay, except for the fact that one may feel bored and also feel like not moving and not working... Thus the word, "sick" day. Other terms for being sick can include, but not be limited to, such fun things as "mental health day," "hospitalization," "severe hemorrhaging," "loss of limb," "Diarrhea," and our favorite, "projectile vomiting."
At any rate, we have all of our limbs and we will just leave it at that. The thing is, around 7:30 or 8:00 PM, as the malaise lifted, and while watching Barrett Jackson auction off tons and tons of automotive eye-candy on the Velocity channel, we finally reached that point where we just had "to do something." The day couldn't be a total waste of recuperation and hopefully restoration to a healthy state. So, we updated ourCandidate List. This is the Stop in the equation, Ice. It is important to stop activity once in a while to make sure that one is on the right course.
This is a simple spread sheet that we do in our Google Drive account. Side note: We highly recommend Google Drive over any other doc storage idea, service, etc. Our spread sheet is pretty simple. We have the following headers across multiple cells at the top of the page:
ADDRESS -Because, let's face it, if you can't find it, you can still own it, but making a profit is going to be tough.
SF -Square Feet (if known). Some sources will not know. If new build, the total SF of the finished product.
SOURCE -This is the "How Did We Find This" column on the sheet. Possible entries below it could be: MLS, Friend, Bird Dog, Realtor, Contractor, Owner, Auction... and so forth.
OPEN. BID - This is either how much the property is being listed for (if MLS), how much the source is asking for the property, or the actual opening bid amount at auction. If a new build, this is the cost of the lot and the clearing of the lot.
MAX BID -This is it. This is the max we are willing to pay. Sometimes this is the last column we fill out. We want to know everything else, first.
EST. REPAIR -This one is a little tougher in the sense that you will either have to rely on a great contractor who knows his or her stuff, great bids or quotes from contractors, or have a deep, deep knowledge of what it will take to get this thing off the ground. After a while, you may end up where we end up, which is knowing the average $$$ per Square Foot of renovation. If new construction, this is the cost of the build. Is it $100 per SF, $200 per SF, $578.32 per SF of build? Bids, quotes and experience will start to work in your favor. We always add around 10% to this number.
ARV -After Repair Value. How much is the rough diamond worth once we polish it up and place it in a golden setting. This can be a little rough if you have a realtor who thinks that he or she knows the market, but does not. "Comps" alone may or may not get it. Knowing what is going on within a neighborhood or town is critical. We always diminish this number by 10%.
P. P. -No, not urine. Potential Profit. Cheddar. The making of the rain. This is a spitball, but we generally take the ARV and subtract our EST REPAIR and MAX BID. Sometimes we just subtract the EST REPAIR from the ARV and let that inform us on the MAX BID. Either way, we always take 0.8% of the ARV off the top. This eight percent (one friend called it "The Hateful Eight." Which we called, "Wait for Netflix or Showtime and Save Your Money.") is the amount you will pay in closing costs and commissions. Or at least what we normally see. This is not a hateful number. This is a well deserved amount of brisket that you have to give to those that deserve a seat at the table. A good closing attorney (in North Carolina) will save you money. A good realtor is worth his or her weight in gold. So this number is a number that one should be ready to pay. This is the Collaborate of this little ditty.
DATE -Either the auction date, the offer date, or the date that we put it in our books.
DOM - Days on Market. If known, how long is it taking for the average home in this neighborhood to sell?
LOT - Length of Time. How long is this party going to take? Our how long do we, our realtor, our contractor, our Magic Eight Ball, think this puppy is going to take to make the full Iditarod Circuit. From the moment we buy this until the day we close on selling it -how long? Time really is money. We value time over money. No kidding. So, if this gig is going to be a quick lipstick and cleaning, but the number is smaller in the P.P. column than, say, a seven month remodel with an average DOM of 120 days that produces a bigger potential profit, we will break out our calculators to see which one will give us a higher ROCE on an annualized basis. (ROCE = Return on Cap Employed)
NOTES -We will note things like "Addition Candidate" -meaning we can create value by adding on. Or, "Seller is partial to pecan pies." (We are not above greasing the skids.) Or, "Smells like a urine party took place over the past 5,324 days." Urine, Mold, Structural Issues, Dead Mice, Snakes, Falcons, and Low Slope Roofs all smell like profit to us. (Among other things.) We currently have notes on two separate properties that say, "Check Flood Plains," because the town in question is known for flooding in certain areas. A popular note is "DRIVE." This means that while we practice our weekly ritual of driving around and looking at property, we may want to swing by this particular profit and get a feel for elevation, neighborhood, proximity to schools, etc. Side Note: Superior Schools Sell. Find a great candidate in a great school district, and you will probably have a very short DOM.
Once we strike a candidate from the list, we no longer erase it. Instead, we turn the cells to red. We do this because it is very interesting to us to note if a former candidate is coming back under the same or different guises over and over again. If an auction item, this could be an indication of deeper problems, or an unrealistic seller. If a number of bird dogs are shopping the same property, then it may indicate some title problems. All of that may mean more money to someone with the skills to pay the bills and/or the patience to wait out the suckers.
The Listen in the tune comes from the fact that the numbers will tell you which properties should be a priority. In a world of infinite resources, we find that our wallet is finite on the "going in" side of the equation. So, prioritizing is key.
Should a candidate make it into the One Percent Club (We probably buy one percent of the deals we look at), we will start a new Spreadsheet just for that property and turn the cells to green ink. Or, more on the mark, we start a new tab/sheet on or in our "TRUE EXPENSE" sheet -not a stand alone sheet. The TRUE EXPENSE sheet is the place where we monitor costs, profits, etc for each project under separate tabs. This is where the real music takes place.
We hope that this was helpful and all of those visiting are cooler than cool this week. Until next time...
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