Our Real Estate System

How we generate income, explained.

Note: Some terms used here may sound unfamiliar unless you deal with real estate. I tried to give some definitions at the bottom of the page.

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1. Find an undervalued property 

The main objective is to identify the property and get it under contract.

Requirements

• The property is at a low enough price where we can add value to it and still make the profit we want upon sale.

Examples

• A distressed home that costs $100K with an After Repair Value (ARV) of $200K

• A vacant lot that costs $20K with houses around it selling for $250K

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2. Fund

Raise the money required to carry out the project.

Funding options

• Use your money

• Use Other People's Money (OPM)

  • Private lender

  • Bank

• Preferably, you want to use OPM. You can do more deals at a time this way.

Examples

• Receive 75% of the project cost through a hard money lender and find a private investor to lend you the remaining 25%.

• Receive 80% of the project cost through a bank and use your money to fund the remaining 20%.

• Pay cash for the property and pay for the repairs/construction.

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3. Add value

Increase the dollar value of the property. The type of deal will dictate what we do.

Types of deals/How we add value

• Fix and flip

  • Repair the property

• Wholesale deals

  • Advertise the property and assign it to a new buyer

• New construction

  • Build the property

Examples

• Build a new home for $140K

• Repair an old house for $30K

• Market the $100K home to investors for $110K and keep the difference ($10K)

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4. Sell or Keep

Ideally, we want both options available. More exits give us a better chance of success.

Options

• Sell the property for a capital gain.

• Refinance the property and keep it as a rental

Examples

• List the property on the market and sell it.

• Refinance the property and rent it.

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5. Reinvest

• Cycle the profits into a new project

The objective is to build a system that runs itself.

There will be a moment where you can't accomplish all of this on your own because you're attempting to do multiple projects at one time. The only way to run a smooth ship is to delegate processes to others. It's essential to understand each process thoroughly to teach others how to take control of different parts of the operation. In the end, you want a system that assembles full-cycle deals while you sleep.

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Definitions

Hard Money Lender: Like a bank, they lend money to real estate investors and developers. Their rates are typically higher than banks, but it is generally easier to meet their requirements.

Fix and flip: We purchase a property, repair it, and sell it for a profit.

Wholesale: We put a property under contract, assign the contract to a new buyer, and keep the difference as profit.

**We are being paid for finding the deal

Capital Gain: Profit from the sale of an asset that has increased in value over the holding period (ex: a house, a stock, or a business).

Refinance: We assume a new loan on an asset with an existing loan (typically at a lower interest rate).

After Repair Value (ARV): An estimate of how much a property will be worth after repairs or construction.