Today on Limitless TV, I'm gonna be talking to you about how you treasure
hunt for equity. We got some naysayers in the market saying that it is not
possible to buy homes with equity. Today, we're about to prove them wrong.
Hands down, one of the biggest questions that I get asked, "how do you find homes
with equity?" You know, there's a lot of people out there, new investors that
don't even know you're supposed to do that and so I make a pretty big deal
about it because buying a home without equity, what it's doing is,
it's decreasing your margin of safety and it is exponentially increasing your margin
for risks, so if I can find a home with a 10% or a 15% or 20% equity position,
that's like a pretty huge head start, like for just a moment imagine that you
were buying a home with a 30-year mortgage and you wanted to like pay off
20% of the house, it'd take you a decade to do that with a 30-year mortgage, so we
can, we're trying to skip a decade by just walk into a home with equity.
What that specifically means is, I've got a house worth a hundred thousand that I
buy for 80,000, well between eighty and a hundred thousand there's twenty thousand
dollars and it's also twenty percent, that's the equity that we're looking for.
Before we talk about how you find these homes with equity, let's just talk about
why it's important that you do. Here's a house that I sold and I got a check for
$95,789 this year, after selling it.
Now, there was a down payment of probably $40,000 in
there and then maybe a little bit in repairs but the rest got to be split.
So that was a really nice check for me and it was a really nice check for my
partner. Part of that $95,000 is because the original
equity that we found the house with. Here's one with $77,493.
Again, testament to equity. $49,000 equity. $55,000 equity.
$90,000 equity. $77,000 equity. All of these homes
had equity and a part of the profits was cash flow, a part of the profits was tax
benefits and a part of it was equity. So how you find a home with equity?
In today's world, it's not hard at all. Number one, get realtors doing it for you.
How do you do that? Target realtors that are representing
investment properties, foreclosures, handyman specials, if they're doing that
on a repeated basis, it means that they've got access to pre foreclosed
homes, means that they got access to short sales, they got access to deals
with equity. They're the ones that you want to network with and I would let
them know that your standard is a minimum
15% equity position. Watch one of my other videos on how to verify
that. But that way, if you're walking into a house that is purchased below the
median with the 15% equity position means that you're looking
minimally at probably $30,000+ that you just
headhunted. Realtors are one of my favorite ways but there's other ways as well.
You can go online to the classifieds, craigslist, and get familiar
with dollar per square foot which I'll do as a bonus in this next segment of
the video, so that you can do a quick evaluation on, oh is this a property that
has some equity in it? Meaning, everything in the area is selling at $120 a foot and
this one is $90 a foot. Let's try to find out why and problem-solve and maybe
it just has a pile of equity because 5% of all real estate is always sold out of
the norm, it has a reason, it's an estate sale, someone died, someone's getting a
divorce, there's reasons why people do what they do, I'm going for a
quick sale because I'm moving and relocating and I just want to sell the
property. The equity is there, it's available, you just got to find it.
So that's the second means, it's looking online at some of the different social
media. One of the third ways that I really like to find equity is just
through the system that I've built. By the way, it's a system that you can tap
into. I actually put a power team together of 200 experts and I go to the
very best markets around the nation and what my team does is, they'll go risk
somebody else's money, they'll buy a home at auction, they'll fix it up, they'll
guarantee the equity position and then they'll make it available. So they only
deal with homes that have those spreads. There's three different ways right now
that you can utilize to find equity. Just make sure that you follow this rule,
if you're gonna do a deal, make sure it has equity. Is there equity in the home?
You need to be able to do the sniff test and I do that with price per square foot.
This is an exercise that you can do so easily, select an area where you want to
hone in on doing your first real estate and you've got to get used to the price
per square foot in that area for homes underneath the median. Let me show you
how simple this is, do not be afraid, the calculator will do almost all of the
work. Let's say that we're looking at a house priced for $200,000 and I'm going to
put that price in my phone $200,000. Let's say that the house just happens to
be 2,000 square feet, I'm going to divide it by the square feet.
It's $100 per square foot, $200,000 house, 2,000 square feet a hundred.
Let's do another one, check this out. Let's say that the house
is $230,000 and so you see that price right there,
$230,000 and let's say that we now divide it by
2,400 square feet. This house is $95 a square foot.
Notice that it is different than a $100 a square foot but still
within 4% or 5% of that same range. Let's do another one, let's say
this is a $180,000 square foot home. See how easy it
is to put that in there? I'm gonna hit the divide button and I'm gonna divide
that by the square feet of 1,900 and I get $94 a square foot.
So far I've looked at three homes in my area, one was $100 a foot,
one was $96 a foot, one was $95 a foot, and so I'm averaging
somewhere between $94 and 100% and let's say that I do
100 more homes just like this and all of them are between $95 and $100
square foot, then all of a sudden, I find this, here's a house for this price:
$220,000 but this house has 3,000 square feet.
Ding-ding-ding-ding-ding! $73 a square foot, what does
that mean? It means the possibility of equity. So when you get accustomed to
your area and find out what price per square foot is, but then all of a sudden,
find one that stands out for being lower than the rest, then you get to dig in
deeper and say, why? Is there a problem with this house? Did the foundation give
out under half the house and it needs $30,000 of engineering work?
Was it a meth lab? Like is there a reason? And sure enough you check into it, it's just
like, actually there's not a really good reason, I mean, it needs some work it,
needs some updating but that's the price. You find out, oh it was just listed on the
market today, oh my goodness, you call, you do some research you, run a CMA like I
show you in one of my other videos, and guess what, you find that this house has
$380,000 of equity and you're thinking, score! And you should because
guess what you just did, you found $38,000 of equity to play with.
That's what we're doing here, price per square foot, simple easy calculation,
get used to the prices in your area and you're looking for, when you take the
price of the home and divide it by the square footage, you're looking for
something that is really off and then you're gonna put your critical thinking
hat on and say, I wonder why this is? And you're gonna start doing
research you and talk to the realtor, you're gonna start saying, what's the
problem? This one's different, run a comparable market analysis and let's
find out if we can decode and if nothing's wrong with it,
guess what you found, you found a pile of equity. Thank you for watching today.
Be sure to subscribe because I got more daily videos headed your way and you can
also click the link below if you want to get more information on how I can just
give you a lot of my extra properties that already have equity in them.