Picking a Property

Intro

This playbook explains

• how to find potential properties when you have a strategy and market identified per the previous two playbooks!
• how to set the criteria for picking the right property
• how to analyze the leads
• how to put a competitive offer
• The due diligence needed before you close

This playbook is a result of me analyzing(or underwriting) hundreds of properties.

At some point, I became wiser and realized that my return on effort was very low because real estate moves very slow, and there are tons of external dependencies.

I zoomed out and then broke down the whole process end to end at the unit level and drew an emotional map of where I was happy and where I was frustrated with the process.

I picked out all areas where I had 'unhappy' faces and knew there was an opportunity to hack a better process instead of relenting to existing ways.

This playbook is a package of all the hacks I use to analyze and close on properties before property management kicks in.

If you are just here for the property analyzer, then you can skip the playbook and get it here.

Excel Property Analyzer

Plagiarism Disclaimer

I have seen folks copy my hard work and then claim it as their own. I put a lot of time and effort into these playbooks and pay for a plagiarism detector, which will identify as soon as you have repurposed my work.

I am putting this message here so you can save me and yourself the precious time of dealing with legalities.

Who should read this

1. Aspiring investors who have 0 properties: This playbook should increase your confidence and dilute your fears. We will overcome the common hurdles together
2. Plateaued investors wanting a lift-off: You’ll get unique hacks to move even faster.

There is no single great method for real estate investing. You gain an edge at the ground level optimizing for efficiencies and asking - "how could this be done better"

Why should you read this?

Most real estate advice online is misleading or incomplete.

I can't blame writers for it because they have hit the escape velocity with a patched-up process and believe they have cracked it so the tendency is to share what they know, which does not always mean the right thing.

Even if they realize their acquisition cycles are slow, it's hard to unlearn and learn.

As a result, this playbook contradicts some popular recommendations. Throughout this playbook, I will give tricks and tips to move fast using technology and insights and what levers gave the best return on my time.

I put weeks into these playbooks imagining what I would have wanted.

Hope you realize the compounding effect of starting with a well-oiled machine.

If you're starting as a complete rookie, you can grow fast if you're diligent about analyzing a ton in the beginning.

Wait for the neurons to build and let them work their magic.

Like anything new, it's an S curve, you have to put the time in the beginning. But once you get the mailbox money, it wouldn’t feel like effort anymore.

The growth is achievable for everyone. Having  "no time” is not a thing preventing beginners from starting the ride to financial freedom.

For the purpose of this playbook, I am going to assume you have a critical mass of capital to start with.

In addition to thoroughly explaining my experience, this playbook is also tactically actionable.

I dislike superficial content that provides only part of what you need to know then leaves you with questions.

If you weren't willing to spend 1–2 years to get results before now, be excited because you can do it in 3 months.

Assumptions

• You have a strategy in place already(Read playbook 1)
• You have done the market research and picked a market + a submarket that suits your strategy(read playbook 2)
• You have at least 20k to invest or a partner splitting the downpayment - not required but easier to get started

How long will it take to buy the first property?

If you have followed the other playbooks and this playbook, and are putting an hour of deep work daily in analyzing properties, you can expect to close on something in 90 days.

After that, you will be much more confident and if you have more capital, you can grow faster.

At some point, capital will become a constraint. A few ways you can solve for it,

• Partner up
• FHA loans
• Do value add projects
• Raise Money
• Creative Financing

But this is a post for another time.

Who am I?

I am just another bloke who works a W2. I love my full-time job where I accumulate a ton of learning capital by going 3D on different industries and business functions. Mostly I advise C-level execs from fortune 500 on how to increase their bottom line.

Frustration got the best of me when I started REI and I decided to spend hours digging and sharing information I would have liked when I first started.

I collate all my thoughts and hacks into playbooks like these because it helps me think clearly and spot unidentified risks in my workflows.

I also share other insights on Twitter as more compressed threads!

If you have been lacking motivation

Before we get into it, let's tackle the excuses stopping you from starting in the first place: Remember most of these will resolve when you see that elusive mailbox money rolling in.

• Have been procrastinating? Most likely you have been lost online in the spider web of information resulting in not knowing where to start and in turn you procrastinate. This and other playbooks will make it easier. Secondly, divide the path to the first rental in sub milestones so it does not look like a long journey.
• Too boring to analyze listings every day? I'll soon explain how to do it quickly and will also provide a chrome extension I built
• Have a hard time scheduling dedicated time? 1 hour of deep work is all you need, I promise. After you acquire the first one, it gets way easier.
• Don’t have the time? Seriously, I have put in the time for you now, all you need is just an hour a day. There is no reason not to work for your freedom.
• Here is how I structure my day with a full-time job.
• Are you scared you will lose the money?
• Your risk is only tangible if you sell in a downturn or you don't buy right. I'll provide a multilayer risk mitigation framework. Even in the extreme worst cases if you don't follow the framework, you may be are forced to sell at a lower price. In which case, you sell at a loss.
• Afraid of getting sued by the tenant or big property damage? I'll explain how to get the right insurance and create layers of separation between you and the tenant with an anonymity layer.
• Afraid the property management will be a lot of work? There is truth to it. I have not come across a good PM but there are ways around it. I'll cover them later.

So stop procrastinating. Let's do this.

"The secret of getting ahead is getting started."

- Mark Twain

Playbook preview

For as long as you want to continue growing your portfolio of single families and small multifamilies, this playbook requires you to put in 5 - 10 hours a week.

If you change your strategy away from single families or small multifamilies, the fundamentals in this playbook will still be applicable.

Here’s the breakdown of this playbook:

• How to set your target criteria based on your strategy
• How to set filters on Zillow, Redfin, and Realtor per your criteria
• How to analyze existing listings on the market
• How to set a workflow for analyzing new leads in the future
• How to create an acquisitions funnel
• How to do pre-offer diligence

• How to put an offer with speed
• Sample timelines for an acquisition cycle.

This is going to be a long playbook so feel free to skip to the parts relevant to you if you are farther along the journey

Disclaimer

This playbook is not financial advice nor it is a security offering. The opinions are for informational purposes only without warranty or guarantee of any kind. The website makes no representation and assumes no responsibility for the accuracy of the information contained on or available through this website, and such information is subject to change without notice. We are not liable nor claim any responsibility for any emotional or physical problems that occur directly or indirectly from reading this website. You are encouraged to confirm information obtained from or through this website with other sources.

Phase 1 - Prep Work

This is a follow-along playbook, which is proposing a program. If you are ready, just follow the program.

To ease you into the process, this program begins with some prep week. When you’re done with the prep work, you'll have lower risks and higher chances of offer acceptance during the acquisition cycle. It will make you more confident and excited to jump in.

Failures can be costly in RE and to neutralize we need to prepare well.

Working hard is counterproductive if you are assuming a lot of risks.

Prep work has one hour's worth of tasks for you. You will:

• Set your target criteria based on your strategy
• Set filters on Zillow, Redfin, and Realtor
• Analyze existing listings on the market
• Set a workflow for analyzing new leads on the go
• Create an acquisitions funnel

If you are stumbling upon this blog and finding it valuable, I encourage you to subscribe so you get reminded of it when I send future updates as I continue refining these playbooks.

Otherwise, this is all free. I have no reason to put in this time for a half-hearted output and I care that people actually follow it through.

Task 1 - Set your price range

This takes 5 minutes.

Through playbook 2, you would have already identified

• MSA level markets with high cash flow potential,
• hoods within the macro market to focus on quality tenants using schools as an easy anchor

If you have not done this, what comes next will be futile. It’s important to find your target geo and focus there before running reps with property analysis.

Once you gain momentum it would be very hard to pivot later on so it’s better to spend time analyzing markets and picking one with confidence.

The goal of this task is to find a pricing range in your identified hoods where properties cash flow well.

For eg- In my markets, If I am looking for 3 bedroom single-family house, I have found the cash flow to be good for properties less than <$145k

My cash on cash return expectation is 12% for my properties, but I didn’t start with that and neither should you.

The value of the first property will not come from $$ but from the experience. Higher cash flow usually means more work or more risk.

However, you need to have enough buffer for risk mitigation.

My suggestion is you can aim for ~7% cash on cash return to start with.

So now your task is to find a cut-off price where cash on cash is at least 7%

To quickly do this, get this↓ Zillow plugin I created.

The extension will give you the COC on the spot while checking out the listing so you can play around with different listings till you find the cut-off price.

Note I hacked the extension really quickly so it’s not going to be the best looking or work 100% of the time but it saves me hours every week. 😎

Since the extension will give you the COC on the spot, you can analyze many rentals on Zillow and start to see at what price your COC will be > 7%.

You will need this number in the next steps. so write it down or remember it.

Let’s say that in the hood you chose you are regularly seeing a 7% cash on cash around $145k asking price range.

This is the number to use when you are saving filters on Zillow, Redfin, Realtor(ZRR) in the next step.

You can flex a little but largely if you go above $145k properties, your cash flow will start to dip below 7% COC in this specific example.

Task 2 - Find existing listings and set alerts for future listings

This is where the rubber meets the road and where you find offer-worthy properties

Side Note - I have found that Redfin, Realtor, and Zillow all have their good and bad. I have seen investors prefer just one but I look on all three because I have found not all new listings show up on all three and I have found some gems by just doing some extra work and checking all three instead of just relying on one platform.

I see it as a competitive advantage so I do not mind the extra work.

Other points from all three platforms to keep in mind as of the writing of this playbook in Nov 2021

• Zillow's property taxes are different than Redfin and Realtor’s and usually lower(and incorrect)
• Zillow's rents are somewhat in the ballpark. Redfin is atrociously off. Realtor does not give rents at all.
• All three give value estimates. I usually rely on Redfin and Zillow estimates. Realtor is off.
• Redfin and Realtor give flood data, which is a must before putting an offer.
• Redfin's ongoing alerts for new listings are the best. The send you a lot of the information in an email about any new listing.
• None of the platforms will give you deep data about multi-families. You would need the MLS listing from your broker on that.

Steps to find existing listings

I am writing meta steps so you get the gist. All the platforms will differ slightly in their execution so you might have to unleash some of your IQ :)

• Go to Redfin, Realtor, and Zillow. The following steps will be applicable to each
• Search for hoods you selected per playbook 2 in the search box
• Eg - I look for the overall county my sub market is part of. eg - rockdale county.
• Now change the 'For sale' Filter. Only select
• By Agent
• By Owner
• These are rare in my market but usually lower priced because the owner is not working with a selling broker hence saving the commission.
• Change the home type. Only select:
• Houses
• Townhomes
• I usually only go for 3 bedrooms since my target tenant pool is families with kids. Three bedrooms, in general, is a safe bet after COVID, when people are yearning for some space.
• Enter the max price to be the one where cash on cash return starts to dip below 7% COC. Remember you wrote it down as part of the previous task. and in our example it is 145k. I just put 150k as the max since I don’t mind going up a little for the right property.
• Save search and select instant updates so you get notified of any new listings meeting this criterion.
• Let’s run the search and see what pops up.
  
  
  

Task 3 - Use the Zillow extension to feed the top of your funnel.
I used to click on those red dots and then copy and paste numbers in my excel model to find the return and hence the right property.

This is how investors lose good deals because they can't analyze enough leads in a day.

There is no reason to impulsively analyze every lead.

I quickly realized this was not a sustainable workflow and how I decided to build the chrome extension because I couldn’t find anything online that did it as fast as I wanted to do.

Now I click on the red dot, and hit the extension button to see the COC on the spot.

1) If the COC is way below 7%, I just move on.

2) If the COC is slightly below 7%, I double-check the property taxes on Redfin and Realtor since Zillow’s taxes are wrong sometimes.

If the taxes are lower than Zillow, then COC might work so I move on to step 4)

3) If the COC >= 7%, this property would be a potential and I move to step 4)

Note: Extension will show COC only if Zillow has provided a rent estimate. If not, you can manually enter the rent by cross-checking with Rentometer for rents in the area or if you know from your broker.

4)Check if the property might be in a flood zone. Both Redfin and Realtor can give that data when you are on the listing.

If the flood factor is greater than 3, I reject it right away. Flood insurance kills the returns plus you might have to also deal with the hassle if it ever gets flooded.

5) Check property pics now.

You could check the property pics in the first step itself,  but I like to see after I know the numbers work to avoid wasting time upfront.

6) Read other details

• Ensure it’s not a foreclosure(different strategy)
• It does not need a lot of rehab(different strategy)
• Check the property history of selling
• If it was sold recently, that raises questions. It’s not too alarming but you would want to do extra diligence if the offer gets accepted.
• If the property has been on market for a while, it is an opportunity to low ball your offer but ensure you do extra diligence if the offer gets accepted
• Ensure square footage is not too low. For a 3 bedroom, I like to stay >= 1,000 square feet
• Ensure the property has public water and sewage system. A well and a septic system require extra diligence and we have no time for that.

Task 4 - Add potentials to the funnel

If all looks good,

Now is when you create the top of the funnel. If you followed the process above it would take you half an hour max every day to create the top of your funnel.

Here is an example of how I create a funnel in a Google Sheet

Simply hit the copy fields button in the extension and paste it into a Google sheet like that.

Here is a sample for you to download

Nothing fancy is needed here just core details to remind you of the property when you look at this sheet.

The important thing is to know which stage each is property is in so you can follow up accordingly.

Tap yourself on the back, you are finished with the prep work!

Phase 2 - Deep Analysis

Now that you have a

• Pricing max for your desired cash return
• Saved searches/alerts for future listings
• An acquisitions funnel with some existing on-market properties

We need to now recruit leads for potential offers.

Before my first offer, I did the following two steps for at least 100 properties.

Trust me - you want to do the same. Its a time investment!

What you lose in time now, you will gain in speed and returns later.

This analysis is an X-ray vision on the properties in your market so you are lowering the risks as well.

Step 1 - Qualitative analysis

It’s during this task that you can ask any questions to the seller before wasting anyone’s time by putting in an offer and then backing out later.

After a property makes it to this funnel, the next step is reaching out to your broker or to the selling broker directly.

Here is my checklist

• Why are they selling it?
• Are all bedrooms proper layout? (no walk-through bedrooms)
• Any washer dryer hook up? (This is desirable by the tenants in most markets)
• Is there any rehab work needed? If the offer gets accepted, you will have to pay a few hundred dollars for the home inspection. If the inspection surfaces major repair and the seller doesn’t agree to the discount, then you would have wasted the inspection money. So better to ask up front!
• more….see an example below

Download the full checklist here.

Step 2 - Quantitative Analysis

It’s time

This is where I verify

• Property taxes on the county website. Usually, Redfin and Realtor are pretty accurate.
• Double-check the rent estimates via Zillow, Rentometer, and Rentcast
• Run the full number analysis once

If you would like this calculator, get it here

If you are unsure about how to do this type of deep analysis, check out a thread I wrote here.

Phase 3 - Offer stage

You have done all the work now but I guarantee if this is your first offer, you are going to feel jumpy!

I remember mulling what-ifs like no one renting my property or something terribly wrong with the property or getting a drug addict tenant. I have bought 28 houses since!

The point is you have done the hard work already and your fears are baseless.

Now is when you join the gauntlet and win by setting yourself apart from others.

I am a huge proponent of speed and agility in this step. That is what is going to set you apart from other buyers and show your interest and worthiness to the seller.

See little known ways below to strengthen your chances in the offer stage

Hack - Work with the seller’s agent directly.

Working with the seller agent means they will prefer you over others because they don’t have to split the commission. There are higher chances of you succeeding.

It does mean you are dealing with a spread of stupidity and a bit more work on your part at times.

The biggest pro for beginners here is that by working with the Seller agents directly, they can qualify someone to be their buyer agent for future deals.

Conversely, if you have your own agent who you have vetted, then they provide the cushion, though it means lesser chances for success.

As an example, I found a quality agent who I work with most times but at times if the deal is amazing, I’ll reach out to the seller agent directly.

We have that understanding set upfront!

Hack - If possible, get access to MLS

Another trick I do here is I built a great trust with my agent to get access to an MLS login for faster analysis.

MLS invariably has more rich info than online marketplaces making your process faster.

It’s a win-win for them because I don’t bug them with questions and I move really quickly.

Hack - Ask the broker if you can draft your own offers

I  have built out the offer templates in Docusign like the one above so I do not have to review the offers every time since I am the source. Otherwise, I found myself spending time reviewing every line of the offer every time to avoid any errors.

If I like a property in Task 5, I hop into Docusign, fill out the template in 5 mins and the offer is on its way to my agent, who just forwards it to the seller.

More efficiency with fewer errors!

Hack - Put an escalation addendum in your offers

Make your offer auto-adjusting with an escalation addendum. If someone puts a higher offer, your offer automatically increases until a certain maximum price.

I closed 30% more offers with this technique

Hack - Consider giving up the appraisal contingency

Offers with more contingencies are weaker.

Consider giving up on appraisal contingency b/c if the property does not appraise to the offer price, the bank will not approve the loan for the offer price.

You can back out using the financial contingency since the bank is not approving the loan.

Hack - Use this appraisal contingency hack

I sometimes put aggressive offers on properties I really like and use appraisal contingency to bring down the price at a later stage in the closing cycle.

When I put a really high offer to beat other offers, sellers get excited and choose my offer.

They forget that the property might not appraise for as much. And most times it does not. By this time, it’s already been a month or two so the seller does not want to relist and will usually bring down the price.

If not I can back out using the appraisal contingency.

Hack - Use pre-qual with better.com

Most sellers like to look at pre-qual letters with the offers and getting one from the bank every time you put an offer is a nuisance. It could take a couple of days.

Consider using www.better.com to get a pre-qual letter. It’s instant!

Moreover, it’s not a hard pull on so your credit score does not get dinged.

An offer needs to have a few things at a minimum

Each state has its own template for putting in offers but the central elements remain the same. Ensure you have you right language in place before submission

• Tenant occupied property addendum - This ensures you can back out on the basis of the leases of current tenants. You do not want to inherit bad leases unless there is a huge upside. Leases are an important part of real estate investing so if the lease looks weak, you can back out using this addendum. You also get to verify the current rents through the lease review.
• Certificate of occupancy  - This is the inspection done by the local authorities. Find out if your area requires it. If the inspection surfaces significant repairs to be done, you do not want to find that out after you close on the property. I mention in my offers that the seller will give a clear CO 2 weeks before the closing.
• Home inspection contingency - This allows for you to have a few days to thoroughly inspect the property for any inherent damage, Termites, Lead-based paint, Radon, etc.
• If something significant is found you can back out or ask for discounts before buying.
• I usually ask for 15 days of due diligence period after the offer is accepted to get the inspections done and do any document diligence.
• Financial Contingency - If you are getting a loan as most do and you do not qualify for it, then you are able to back out. This is common but in a seller’s market, I have seen strong buyers forego this contingency.
• Appraisal Contingency - The loan institution will send an appraiser a couple of weeks before closing to assess the value of the property you are buying. If the property does not appraise and falls short of your offer price, you can back out of the deal.
• EMD amount - Earnest money deposit - This is the initial payment you send to a neutral party when the offer gets signed. This is to protect the seller in case you decide to back out outside of the conditions or dates mentioned in the offer.
• Eg - If it’s been more than 15 days since the offer was accepted and in the offer you had mentioned 15 days of contingency or due diligence period. And now you decide you do not want to buy the property, you are going to lose that EMD.
• Closing date - The date when the property handover will officially happen, sometimes also called as the settlement date. I usually put 45 days from the offer signing but it is dependent on the speed of the bank so check with your lender once. From the Seller POV, the earlier the better so sometimes I have also put in 30 days if I know my offer will be stronger as a result.
• I also tend to put Fridays as the closing date because you will need to be present for the closing(someone please start a startup to do remote closings :))

If you are a member, you can see a detailed example of my offers with all dates, clauses, and conditions below.

Detailed offer example

An aside- Thinking if you can put multiple offers?

Yes, you do not have to wait for the results of one offer before putting another one.

This is a recipe to lose out on deals.

If you are afraid about what happens when multiple offers are accepted when you do not even have the capital to close all.

A) It never happens in a seller market

B) If you have not sent an EMD so you can still back out if a better property is accepted. Not ideal but it happens all the time.

C) You can put a clause in every offer, “If another offer gets accepted before the seller accepts, the buyer can void the offer”

At any point, I have 5 or 6 offers hanging out there even knowing that I do not have the capital to get all of them.

If you have sent the EMD for one offer and another better one closes, you can still exit the basis of many clauses in the offer agreement like

• Tenant lease review saying you did not like the leases
• You found something wrong with the home inspection
• In the extreme worst case, keep your EMDs low so for whatever other reason you need to back out, you only lose EMD.
• I have never lost my EMD btw

To me, the key is in having a fat funnel in hot markets to have better chances of closing. If you are going for speed like me then it’s a numbers game.

More offers you have out there, better the chances

Wait or do something?

The answer in general is always do more!

So it applies here as well. Do not just wait now for the seller to pick the best offer, especially if the property is a standout.

Prompt the seller agent to know where in the race are you?! Understand seller motivations, and calibrate your overall offer.

Maybe the seller wants to close fast - check with your lender if you can close faster.

You have done the hard work until now, just go the last mile.

The offer is accepted! now what?

Congratulations first of all!

You were throwing a bunch of hooks up until now. But now you got one.  The work really starts now to tackle property-level risks while the banks and the Title company do their diligence.

For the next 30 to 60 days, you will go through cycles of work and it could be challenging at times if you have a full-time job.

There is a lot to cover for the live deal phase so it warrants its own playbook. I am planning to write about the full journey as visualized below from offer acceptance to closing day.

Ensure to sign up below, if you want to be notified when I release it.

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