How To Find Equity – Uncover Hidden Real Estate Deals
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.