Ep 9: The Secret Behind Knowing Your Real Estate Numbers and Avoiding Bad Deals

Today we are going to talk about knowing your numbers in the real estate game. There's a fine difference between gut and gamble, and most of that has to do with the experience of knowing your numbers.

Today we will cover why knowing your numbers is so important, and how to determine those numbers by setting a realistic ARV for the property. How to determine the after repair value and how to break those numbers down when real estate flipping.

Tim Murphy has a great story about fighting the reality of the numbers, and going with a gamble.

And Bob has a great example of knowing your market so the big price you pay from a wholesaler is worth it.

Buckle up, we're talking numbers, and numbers will save your bank!

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In This Episode….

2:16 Tim's story about ignoring the numbers. Then the gamble.

9:57 Bob's story about fighting the gambler and trusting those close to you

13:40 3 things you need to know as you start the process of crunching the numbers.

18:11 What is a ARV and why is it important?

20:52 What wholesalers need to know about ARV

25:40 The importance of passing along material and labor when calculating your ARV

32:00 Knowing your area. The number thing you need to understand -- the dynamics and value of your area

35:40 A tool to use to have a baseline for your numbers

Miss an episode? Catch up!

Full Transcript

Tim Murphy (00:00):

Welcome back to the value driven investor podcast. And I'm super excited again, to have my buddy Bob grant on with me today, Bob, how you doing buddy?

Robert Grand (00:10):

Early on the the west coast? You know, it's an 8:00 AM so

Tim Murphy (00:14):

Well granted, we like to get you out of the bed early on the weekends. It's still a little buggy out here. So today, no, your real estate numbers and Bob GYN. And I had an awesome wholesaling episode. And that was a good one. Yeah, that was a good one. That was a long one. But this one, the reason we were wanting to do this one is because if you are a wholesaler, want to be a wholesaler, you know what? You better understand your numbers because Bob, you know, his brother is a super smart, very analytical numbers guy. And we're hoping to have him on one day in the podcast to talk about like the deep dive into numbers. But today what we want to talk about is like the 30,000 foot view, because when you're a wholesaler, you want to put together a really good package because your package is what's going to number one, give you credibility.

Tim Murphy (01:12):

Your package is what's going to allow you to make good decisions, because if you're thinking about your end buyer and what they need before you actually buy the product, then you're going to know what number you need to hit. And so the package and the numbers are the key. Now I want to start this off with a story, okay? Because this is so important, this number thing and knowing your numbers, that it, I have to tell you a story that I've only lost money a few times, and I've been doing this for 17 years and I've only lost money a few times. I would tell you, I've only lost in 17 years, total $25,000 total. Yeah. And that's, and that's, I'm 110% telling you the truth. I, because of the numbers, because I am so focused on here's my numbers, here's my breakdown. Here's my ARV.

Tim Murphy (02:07):

And I am not going to pay more than this. I've lost very few times. Now. I'm going to tell you a story right now about this property at six 20 Niagara. That's what we're going to call it. This six 20 Niagara property that I did was a it was a new construction tear down build. So if you guys haven't figured out what I do I do a lot of what's called infill development. So I will go and I will find a house like let's say in the six 20 Niagara situation, I will go and I will find a house. That's like two, I think we paid 2 35 for that house. And in that neighborhood, I had market knowledge. I had a good understanding of what was going on in the neighborhood because I had already done three projects in that neighborhood.

Tim Murphy (02:48):

I had bought a bank owned deal, right? When the market had turned for 185,000, which was a great deal. We did a tear down new construction on that, another infill development projects. Then I did my very, very first infill development project in that exact same area where we bought it for two 20, we tore it down. We sold it for 8 75. And so, and then I had also bought around the corner from this house, a big 0.7, five acre lot that I bought from this family. And that I was actually at the time I had rented out. And then all of a sudden this opportunity came up six 20 Niagara, and the seller was super motivated, but he was being a stickler on his price. Now, where did I go wrong? Well, I crunched the numbers. I knew that what he was asking was more than what I had paid for anything else.

Tim Murphy (03:34):

And even, ah, no, it wasn't more than what I paid for that corner lot. Cause it was a big 0.7 to five acre lot. But the other two projects before that, he wanted more than what I paid for those other two projects. And that was just like, well, that number one doesn't make sense. Okay. So how am I going to work around that? Now I crunched all the numbers and my builder was really motivated. He's my business partner. And he's also my builder general contractor. And see, this is the beauty of our relationship is that I am the guy that is very disciplined when it comes to the numbers. I know the market better than anyone. And he knows that that's one of the reasons why I bring him a ton of value. He really wanted this project. He's like, Tim, we really need this project.

Tim Murphy (04:16):

This is a gorgeous lot. We can build a gorgeous house. We just sold these other two. Let's make it happen. And this was like in the infancy of when we started, like, what was this? Probably 2012. We were just starting to get into this infield development thing. So this was like our third fourth project. And he was like, let's do it. Let's do it. Let's do it. And he, he sold me. My business partners sold me on the reason why we should do it. And so I finally was like, you got, I go. I told him, I said, Hey buddy, I, you know what? And you guys, this is a huge lesson. I said, you know what? I don't believe the numbers justify the project that you want to do. And I've ran the numbers. And you guys, when I'm, when I'm about to make that decision, I run the numbers.

Tim Murphy (05:01):

I'm telling you, I'll sit there for an hour and a half and I'll run every possible scenario. I will dig in comps. I will just like, that's all it consumes me because I know how important the decision is. And that's what I did, except I did this for days on this deal, because I just knew in my gut, I'm like, man, I shouldn't do this deal. I shouldn't do this deal. But my partner was like, yeah, let's do it. Let's do it. Let's do it. We can do it. We can make it work. It'll work. And because we had only done three deals, four deals of this infield development. I, I also knew, well, you don't know everything. I mean, it's not like you've done 50 of these deals. Like maybe he's right. And he has a lot of experience. I mean, he was actually a builder that would go out and buy lots and build houses.

Tim Murphy (05:47):

And he'd been building for, he's been building for at the time. That was probably like 22 years. So I mean the guy's not, you know, he's, he's a veteran, but he's also a little bit more of a gambler. He'll gamble. He'll take that chance. He's a typical builder. That's like, Hey, if we build it, they will come. And I'm like, okay. I said, okay, okay, okay, okay. Here's how I'm going to look at this. You might be right. And I might be wrong. And the numbers, I might not have everything figured out and the numbers might not be right. So you know what? I want you to know that I trust you because you're my business partner and that you have a ton of experience and that you know what I'm going to do this deal. And you know why? Because I want you to know that I don't know everything and that I do trust you this much and that, you know, what, if it goes great, then I need to listen to you more often.

Tim Murphy (06:39):

But I T I told them, I literally said this to him. I said, but if it doesn't go great, I'm going to always remind you that I didn't want to do this deal because on the construction side, on the ARV side and just, you know, the numbers were telling me, do not do this. And he goes, okay, that's cool. Let's do it. Okay. So very short a year later, we still have the house. We it's a beautiful house. We put it in the, in what's called the parade of homes. Oh yeah. Hundreds of people come through the house. We, he went over budget on construction costs, which is normal, but we went over budget pretty good. We paid too much for the lot, which I told him, and we ended up losing each of us $9,000 that you have to understand, like we were planning on making $150,000 on this project, but because we've overpaid for the lot, because the construction cost did not end up where they should have been because we didn't have the right numbers because we had to carry this house for so long because we couldn't sell it because we priced it too high because we didn't follow the numbers because of all these factors, I had to write a flippant check for $9,000 to get out of that house.

Tim Murphy (08:00):

Now $9,000. But the whole point was, I looked at him. I said, Hey man, now, you know, I trust you, but now, you know, you need to trust me. And honestly, we did, I did that one other time with him and we didn't lose money, but it was not favorable. As far as what we thought we would make and what we did make very minimal. Like I think we walked away. We were supposed to make like a hundred thousand dollars and we walked away with $10,000 a piece. Let me tell you, when you're working on a construction, the general contractor on a new car for six months, four months, and you walk away $10,000, you know? Yeah. And so, because you have so much time, I'm invested. And so he looked at me and he said after the second time, cause this was the first time, but the whole point is this.

Tim Murphy (08:45):

He said, you know, the market, you know the numbers, I'm going to give you my opinion, but your going to make the decision. And we've been doing, we, him and I have been this because you got to stay in your lane. And that is my lane. And he jumped into my lane and he got bit and he didn't like it. And so that's the whole point. If you're a wholesaler, stay in your lane because you're a huge asset to Bob and I, if you're out there running these numbers and doing the right thing and making the right decision, so then we can come and it's a no brainer. And we're like, yeah, let's jump on this. And we keep winning. We're like, yeah, we're getting more deals and you just keep making more money. So I don't know, grant, if you have any insight on that story, but that's my story. I will never forget it,

Robert Grand (09:30):

Dude. That's, that's a great lesson and it wasn't a huge amount of money, but it's still burns. And I'm sure this kills you today. You know, I think one of the things I'm fortunate about it, fortunately that's fortunate for me is, you know, I started out investing a little bit later in the game professionally, you know? And so I, and I was surrounded by other people who were already doing it. And so the numbers from day one were ingrained into my brain. Like you better know your numbers, so I haven't lost any money yet, which, which is awesome. But I deal a deal yesterday. You know, speaking of your deal, a deal that we lost yesterday because of $4,000, the numbers didn't add up by $4,000, we made an offer and this is a low, you know, project, you know, it's like $230,000, you know? So our offer price up

Tim Murphy (10:16):

Or 230 on that

Robert Grand (10:18):

Would have been, it would've been 365 on the after repaired value. So when we looked at it, you know, with the amount of construction costs, we just reversed herself back out, which is what we're going to talk about. Our price came at 2 31. We thought we were going to get we're thought we were going to get it. We're like, yeah, they're like, everything's looking great. Somebody slid in there at 2 35. And so then I was just like the gambler in me, you know, my brother's the number hard rock guy, kind of like how you are. I'm kind of a little bit more on the gambling side, but I trust his numbers and I can do the numbers exactly like he does and I have the experience, but I liked him doing it. So it's like another opinion. I look at it too, but you know, that, that gambler me.

Robert Grand (10:55):

I'm like, ah, screw it. Let's just do it, man. Let's take that. Let's jump to that price, wave. Some fees in there are real estate commissions and stuff like that. And let's get us over that edge. So that way we can get these, you know, this, this deal and make it happen. And he was like, yeah, he goes, you know, but you know, our construction costs, what if it goes over then we're, we're chipping away. We're chipping away. He goes, this would actually be the less profit, you know, the profit margins already tight. He goes, we'd like to make, you know, 75 K per deal. This would already push us down to 50. He goes, what happens if something happens? And we go down to 30, I was just like, yeah, you're right. You know, that makes a lot of sense. I was like, he's like, let's just move onto the next deal. And you

Tim Murphy (11:35):

Know, you know what, one of the key things though that people need to understand is that you've created an installation to remove emotion because you were about you. If it was just you all on your own, you might've made that emotional decision, but you added an insulation barrier or a re to reduce your risk, which is your, and see, that's how Chris and I work too, is that sometimes I need Chris to push me because I'm too conservative. And I miss deals. Like I told you guys about a deal that I missed out on where I could have bought it and I could have just literally sold it right again and made a good profit. But the numbers didn't work out how I was looking at the deal, which was a tear down new construction. When, if I was looking at the deal is like, just buy it and then just put it right back on the market.

Tim Murphy (12:19):

Well, I could probably make a ton of profit. So there's a million ways to skin the cat. But like Bob said, you know, you have to know yourself. And that's where we talk about extreme self-awareness because if you don't know your tendencies as a, I'm kind of a riverboat gambler, like my partner or like Bob and I wouldn't call Bob a riverboat gambler, but I would definitely say Bob likes to pick a chance every once in a while, where his brother is very conservative. And I would say, you know, for me, I'm, I'm a little bit I'm conservative, but I'll take a chance just like I took a chance. And I'll definitely take a chance if I, if someone that I trust tells me, Hey man, I think this is one we can take a chance on. I'll take a chance here and there. But anyways, let's get into the nitty-gritty cause you guys want to know, you know, know about the numbers.

Tim Murphy (13:04):

So you're probably asking yourself why is knowing the numbers so important? Okay. Well, I think we answered that knowing the numbers is so important because it reduce your risk drastically. I mean, Bob and I, Bob hasn't lost any money. I've lost maybe $25,000 in like 17 years. So the only reason that I can say I've done that is because I'm very methodical about my numbers. So why is knowing the numbers so important? So you don't lose money and go broke, right? What is the first thing that we want to talk about? Now? There's three things in this 30,000 foot view of knowing the numbers that we want to talk about today. Number one is understanding ARV after repair value. Okay, you have, that's where you start. What if I do all of this? What can I is the maximum dollar I can sell this product for?

Tim Murphy (13:54):

And you know, maximum value you have to understand after repair value, that's maximum value. You can sell a product for after you remodel it. And then the next one is what are the repair costs? You have to understand when you find ARV, you have to back out all these repair costs. Okay? Because those are, that is a variable that is very dynamic. Repair costs is dynamic from, in the very beginning because each contractor or each rehabber will look at repair costs differently because they might look at their project differently and what they're going to do with the property differently. So you're never going to get it right, exactly. But as long as you have your philosophy and you have a model for showing people, like we talked in wholesaling, you have option a option B and option C. And this is how I break down these options and, and how the repair costs relate to them.

Tim Murphy (14:45):

Then, you know what, you're really helping that a rehabber like Bob and I to make a decision and a good decision. And then number three is know your market conditions and your area. I mean, if you're a wholesaler, if you're in the survival phase, in your getting dropped into a market, like we talked about, and you don't know anything, you better start researching that market and you have to find, it's like, I love the show gold rush. And that's what your market area is all about when, when Parker's running around trying to figure out, okay, where am I going to have find my next plot? And he's drilling holes to try to find, okay, is there enough gold here? That's your market research? That's your market areas. You're always drilling holes, test holes. And you're trying to find where is that vein of gold?

Tim Murphy (15:32):

Because the market I work in in Minneapolis is a vein of gold. I mean, it's, I've done research around the country in different markets and there's a couple other markets around the country, but there's not many markets like the market I'm in that I can do what I'm doing and make the kind of money that I'm making. And it was a lot of research, a lot of testing and taking some chances. And then all of a sudden, Lou, you know, maybe not really losing money, but not making very much money. And then I'll start, we figured it out and it's like, boom, boom, boom. So those are the three things. Air B, repair costs, market conditions and your area. So Grando, let's talk ARV, what is a realistic ARV for this property? That's usually what you're going to have to ask yourself. If you're out there wholesaling or investing, what is a realistic air V for this property? Granddaughter? How do you come to after repair value? What, what insight can you give on that?

Robert Grand (16:29):

Yeah. So after repaired value, you know, we just, basically, we, we shoot for the percentage that we would want, right. So when you're looking at that, like, you know, we're 70 to 75% of the after repaired value, meaning, you know, we will look at the after repaired value, we'll make an offer at 70 to 75%. And and then we subtract out construction costs, you know? So I guess I should say, we look at the 70 to 75% of that after repaired value, subtract construction costs, and then that's our offer. And so that, that's, that's where we land most of the time and you know, that number fluctuates a little bit, you know, but it kind of depends too. Like when, if you're using private money, you know, what does that private money lender need? So if you're looking at like, well, this private money lender that we're using right now, he likes to pay for just the acquisition cost is 65% of the purchase price. Right. So we have to think about those two numbers and then that's big picture, but so you're kind of going back and forth and it's usually falls in that range 70 to 75%.

Tim Murphy (17:29):

Okay. So 70 to 75% you find your ARV. So talk to me about finding your ARV. What, what does that mean to you as, as a guy that goes out and buys properties and it's going to be doing the rehab and is going to maximize that value and is needs to know, okay, what's the after repair value. When, if I'm, if I'm coming to you with a deal Bob, as a wholesaler, how do you want me to, to calculate after repair value as far as like maximizing the property? So if the property, if I come to you and say, Hey, after repair value is 350,000, w do you want to be like, what do you want to ask me as far as well? How did you come to after repair value? Yeah.

Robert Grand (18:07):

So after repaired values, I mean, ARV equals good agent, right? So what does a great agent do? They have comps? They, they do a great market analysis on the area. So ARV equals good agent. It's kinda how I always say it. So if you have a good agent, if you are a good agent or you have a good agent, that's how you're going to get that after repaired value. So you can, you can do some prelim work yourself, right? And you can look at comps, you can look at Zillow and all that stuff. But just having that line with a good agent is going to be very helpful because you can be like, Hey, what are you thinking? We clean this thing up. We, we make it a nine out of 10, you know, 10 being new construction, but this is going to be an, you know, a nine, you know, what do you think?

Robert Grand (18:43):

And for price and send me some comps on that. And so having your best comps around, you know, we're both agents, so it's easier for us. That's where we cut our teeth is doing market analysis, market analysis. But some people that are, you know, new investors, they might need to rely on a really good agent as they're doing that. But everybody starts to understand the home values right. In every market, you know, when a homes over price, just looking at a home. So most people go out there and when you're searching, doing your own home search, you start to realize that without homes over price, and then wow, it hasn't sold in 200 days. You know, like the people on the, in the market tend to know that just because they're searching for homes and which, so it's kind of an interesting thing. But when you look at it, you know, just good comps you know, is, is what you got to do.

Robert Grand (19:26):

And you've got to find those properties within a mile. You know, the closest you can get, I start going, you know, as a good agent, you know, I think, okay, what can I find in a quarter mile, half mile mile, I'm getting outside that mile. Okay. I'm starting to look bigger and bigger, and I got to start justifying, right? Like, why am I using that comp outside of that, outside of that area. And that's exactly what an appraiser does. Right? And then they write a justification. So, you know, ARV just equals good agent, you know, being a good realtor, knowing your market analysis and being able to do that.

Tim Murphy (19:56):

If I'm a wholesaler, Bob, and I'm trying to bring you a deal and I want to establish ARV comps, do you want to see how far you said, you know, how far back let's and you might've just said this, but you want to see how far back, like, should they be like a couple of weeks, a month, two months, six months a year how close to the comparable, like, so if, if this is a ranch style house, do I have to have all ranches? Also when I'm thinking about ARV, do I base it on other houses that have been remodeled? What if I haven't, I can't find another house that's been remodeled. Do I base it on an existing house that maybe hasn't been remodeled as much, like go deeper into, you know, what are you thinking if I'm giving you a package, I'm a wholesaler and I'm giving you a package and I want to support my ARV. What go deeper on that? Cause I think that's yeah.

Robert Grand (20:50):

Yeah. I want three, three really good comps. And I want three really good comps. Preferably in the last few months, the last three months would be awesome. You know, if not three months, six months, I'm not really shooting for much over six months, but most, you know, are, you can find really good constant everywhere for the last three to six months. And those comps tell us, you know, where the, where the direction of the market's going. I'm a, you know, you may put in six or eight comps, you know, maybe go three months, six months, nine months. But that also, that also presents me an arrow of the direction of the market, right? It's if nine months ago the market's here, six months, it's here, you know, and it's climbing, you know, that's a good, that's a good indicator for me. It'd be like, well, at the end of three to four more months of construction, you know, I'm going to probably be ahead.

Robert Grand (21:32):

The market's not going backwards, you know, or, or maybe at this point the other way. So I need to start planning to be able to come in a little bit less than what I actually think my ARB is right there. So I think that's probably like the big bang. And then you're talking like, you know, like for life, you know, apples to apples is what you really want to shoot for at first. You know? So if you're doing looking, you gotta, you can't, you can't compare a lot of people will do this. They'll go price per square foot. It's a thousand square foot home. Oh, it's 250 a square foot. This is a 3000 square foot home. Time's out like 250, or it gives me this that's my that's going to be your ARV. It's like, no, you know, 1000 square feet doesn't compare to 3000 square feet, you know, 800 square feet to probably about 1200 square feet compares to 1000 square feet.

Robert Grand (22:17):

So you've got to stick with your within kind of a close window, you know when you're looking at square footage, bedrooms and baths should almost be the same. You know, if it's a three bedroom, two bath, you want a street, many, three bedrooms, two baths, as you can get, if it's a rancher, of course, I want to see other ranchers now I don't want to see the two stories, you know, and all that type of stuff I want. I want like for like but you know, there's always the, but you know, if I can't find, you know, a rancher that matches it, but there's a, a two-story rate over here. Maybe it's a little bit higher in value and it's a little bit newer. It can be a judge. It can be an indicator. If I clean this house up, you know, okay, what's somebody gonna, they're gonna probably not see it as is this 2018 home.

Robert Grand (23:01):

This is a 1970s home, but I can give it the 2018 finishes. You know, I'm not going to get new construction pricing, but I can make it an eight, you know? And I always like to tell people, you know, start judging homes on a scale of one to 10, one being tear down and 10 being new construction pick where that home fits out on that spectrum. You know, so if it's a four or five, can you make it an eight because you can never make it new construction. Right. But you could make it an eight or a nine, you know? And so you can start kind of judging those things like that and breaking it down, you know? You know, and a lot of it is involved around, you know, the, the, the year it was built, you know, as to what it can be. So breaking those numbers down like that, I think, you know, you can, you can get pretty close. Yeah.

Tim Murphy (23:42):

Granted, I think that's a great description from a 30,000 foot view on, so if you guys have questions, obviously you hit us up, you know, you can go to value-driven investor.com. You can sign up for our email. That'll allow you to dialogue back and forth. You can go to our Facebook page value-driven investor Facebook page our community page. I mean, we want you to ask questions here, the podcast, we can't answer everything. I mean, real estate is way too dynamic. So that's why we want to create this community. Because if you have questions we want to answers, or we want to give you answers. So the next thing is, is, is construction costs, all right. Repair costs that's another big pillar of know your numbers, repair costs. Grando you are the general contractor. You're literally a general contractor. I mean, how does someone get a better understanding for material costs and labor costs in it?

Tim Murphy (24:32):

And the, I mean, it's even painful for me to talk about this right now, because labor costs, material costs are going through the roof. Like, literally, if you want to tell, if you want to know, like the risk that I feel right now, for me, when I'm doing, you know, right now I'm working on $2 million plus projects. And and with COVID we had these projects bid out and literally just our lumber costs, just our lumber costs on one project, went up $12,000 after we had a signed contract. So we had just pass that cost onto the client. We have to absorb that cost. And so that is right now between labor and materials. Literally we have these numbers and they're there. Our profit margin keeps going down because these numbers keep going up on labor and materials. So Grando give him some insight from a general contractor's perspective on today's market and just understanding and the importance of understanding labor and materials when it comes to repairs.

Robert Grand (25:31):

Yeah. You know, if they are vehicles, good agent and repair costs equals good contractor. Right. So having, having a good contractor in the area that you have a relationship is ultimate is the ultimate thing that you can do, which is, you know, you have, which is what we have with my company. I've trained my brother on how to get the, the numbers basic basically down, you start to run those numbers and figure it out, but there's a lot of online resources that can give you averages for areas. Right? So I can't think of any right off the top of my head, but, you know, there's like the there's like builder books and stuff like that, that builders kind of go through and can have kind of a general idea of pricing on the west coast versus east coast. You know, kind of, you can kind of zone in big picture view with that, but then you can, you can also start calling around and start questioning, you know, like what, what you could get, like, you know, what is a rough cost, you know, and, and what are the material costs of a roof, you know, and figuring those things out and just looking online and doing a little bit of calling locally, calling cabinet shops, you know, if I have a standard L-shaped kitchen, you know, what would the average cost of that be?

Robert Grand (26:33):

And what would the countertops for that be, you know, it's and you start breaking things down in your brain. I like to break it down in price per square footage is of everything. Cause it's so much easier. Once you start those averages down over time, you can say like, well, I know maybe you've done your own home remodel. And you're like, I know I did my kitchen to cost me, you know, $20,000 for a kitchen in a house. That's a square footage. You can break that down real quick, reverse, you know, take that chunk of money, divided by your square footage and give you kind of a general idea and then go out and test it against a few other things and adjust it. So, you know, for us, for example, like I've talked to my painter a few times and I've said, you know, like price per square foot on painting, you know, like what, what would that be?

Robert Grand (27:14):

You know, trying to figure it out. Cause I'm always trying to calculate things by so I can, I can add you into the picture. Right. And so, and cause I want to use the guy. And so he's like, he's like, okay, well, if I had to break it down, you know, the last four or five projects, boom, boom. We walked through and he goes, yeah, it looks like it's about six bucks a square foot and that's a mid grade paint job. And you know, so there's all these different finishes and fixtures and, and the quality as it goes up, it costs more per square foot and more in labor. And so just thinking average is like, okay, we're kind of that entry level, mid grade painter. So it's like, okay, it's about six bucks. And I go, okay, now break that down between next year.

Robert Grand (27:48):

You're an interior. He's like, well, exterior is cheaper. So I would say no, 2 25 for exterior paint and you know, the two or 3 75 or whatever for the interior, because there's, you know, wall paint, trim, paint takes a lot more time. So I started liking to break things down into prices like that. You know, the cost per window is an easy thing. You know, like what's the average price of window. You can look on, go online and start judging them numbers. But you have to remember, you know, repair costs equals good contractor and your numbers are so key. And having those numbers is a ticket going out and finding a project that's not, and you can bring your contractor out. If you have one, you can bring them out and get estimates, get a general contractor out there to ballpark. But you, that the conversation you have to have with that person, as you need to find that GC who isn't the cheapest in the world and isn't the most expensive in the world.

Robert Grand (28:36):

You want that middle of the road guy. So he might not be that big name brand contractor. You're seeing all over the signs everywhere, but he's also not the one you're finding on Craigslist, right? There's that guy you'll find in between. And he's a good, honest, hard work. And dude, that's out there or gal it's out there just making it as a contractor and doing good quality work. That's your contractor. And when you find that person or you find a few of them, those are the ones you cook into and you start running those numbers against calling up, Hey, what do you think this would be? How would that be? You know, and running the numbers like that. But that's the education aspect of it that you got to go through to the point where now, you know, I walk in any house cause I've been doing it for awhile.

Robert Grand (29:17):

I can just be like, boom, this is that cost. This is that cost. This is that cost barrier. You know, then, then of course putting in a buffer, right? Like putting in a contingency because like I haven't seen inside the walls. So it's like, what would you know, it's an older home. So I need to have a bigger contingency for that versus a newer home. You know? So there's all these give and takes and you start to break those numbers down and over time you end to kind of understanding it and you less on your GC and he starts to trust your numbers and judgment when you kind of start working together.

Tim Murphy (29:47):

Yeah. I think you summed it up really well. And really when you're talking Bob, I'm thinking, okay, if I'm a wholesaler, what is he really telling me? He's telling you, you need to find a GC. Even if you're not going to be a rehabber, you need to find a GC that when you find a wholesale opportunity that is willing to come through or is willing to at least look at this opportunity with you so that you can get that perspective. Now, now the other thing is, if you're, if you're still like, oh, well I'll be happy, but I just started, I don't have a GC and I'm not going to try to figure that out. Then you need to like, you need to go and, and get on the job or you need to go follow your, you need to find like somebody on your buyers list.

Tim Murphy (30:30):

If you have me or Bob on your buyer's list, you need to be like, okay, Hey guys, I'm going to go out and dig up deals for you. But what deals do you have going right now? And you need to start asking a ton of questions around, like, what does this cost? Can I go through your project? What is that? Can you give me the breakdown on this project and understand a live project that Bob and I have, because if you can, if you can understand what we're doing in a live project and go from an ARV and be like, okay, I'm seeing this really happen. I'm seeing these real costs on a real project. Now I can get a better understanding. I mean, you better be doing at least that because if you're not willing to put in that much effort to understand your costs, go out there and put in the time to understand, you know, what a guy like Bob and I are doing to, to rehab a project and what all goes into it.

Tim Murphy (31:18):

I'm going to tell you, you're going to be that wholesaler. That's just throwing dartboards at the dartboard. And eventually, you're going to get burned. And eventually, those guys on your buyer's list are going to be like, yeah, I would have bought 10 projects for me this year, but you don't know what you're doing and you don't want to be that guy. So, you know, I think Bob summarized it really well. And, and again, this is a 30,000 foot view, but you know, nothing that you do in this world to be successful or live life on your terms is going to be easy or not require a time investment.

Robert Grand (31:48):

Right? Yeah. So true man. Very,

Tim Murphy (31:50):

Very true. Okay. Well now let's go to market condition and your area, okay. Condition in your area. This is probably, it could probably be the number one thing that you need to start with started with ARV because I think ARV and market condition in your area are go hand in hand. But I want to talk about my area. So I found a fantastic area in the Minneapolis area. And in that area I have done, I did research for two and a half years watching market trends, which means watching the comps, what houses were junk, like let's call it a one and how could I turn it into a 10? And that's literally what I do today. I take a house. That's a one that is just basically dilapidated. And then I just tear it down. And then I just build a brand new house, like a project that I did@westfortyninthstreet.com.

Tim Murphy (32:39):

If you want to go to that website, west 49th street.com, I took a house that was just dilapidated. And then I tore it down and I built a $1.5 million brand new construction house in a fantastic location in Minneapolis. Now, how do I do that? Like, well, I'm going to tell you this. I do it because I've spent years researching the area. I've spent years watching those market trends. What are houses doing? What, how has, and I've also watched other people do it. So I'm not going to go and do a project like that. If I haven't seen someone else do it because that's been happening in the area that I work for for quite a while now, you know, the McMansion thing, that's, I'm the McMansion guy, right. But you have to do that. You have to pay attention to, okay, where's that area that I can actually have a good ARV that has a big enough margin that I'm reducing my risk because things like Bob said as a general contractor, you're never going to know what's in the walls, so you better for it.

Tim Murphy (33:39):

So you need to find those areas and dig for those areas. And that's understanding, you know, where do I get that data? Now, if you're not a licensed agent like Bob and I will, number one, we would recommend that you become a licensed agent because if you want the best data, usually when you're a licensed agent, you're going to be able to find and get access to the best data, which is number one, the MLS. But there's other access that you can get as an agent as well, that will allow you to get the best data because in order to make good decisions on ARV and understand your market conditions in the area, you need great data. And you know, the internet is the king of data. But if you don't have that, there are different websites out there. I think there's like a website called remind. Bob, what other websites are out there that you kind of know for,

Robert Grand (34:26):

For looking for comparables and stuff

Tim Murphy (34:28):

Like that? It's like stuff like rules or whatever, you know, all the factors. Yeah.

Robert Grand (34:34):

Zillow, like a lot of people use Zillow, you know, cause it has like comp tools, you know, things that you can do shows, you know, previous souls in an area, you can kind of turn it on and off. Those are data scrapes from county records. So it's not as good as MLS, you know, but I think that's probably, if I were a wholesaler, I'd probably be jumping there, you know, looking there remind is another good one. Just trying to think of ones that aren't agent involved. We have a really great one for agents that are, is national called a realtor property resource, NAR national association, realtor property resource. That gives me access pretty much everything in the United States, which is awesome. So that's an agent-based one. You can always go to a lot of county records are online, you know, so our county records are on the line. So yeah, if in our area you can, you can get online access, go and search, you know, what's sold and everything like that, looking at the, you kind of end up sifting through deeds that way, but that's that, that will give you the actual price

Tim Murphy (35:33):

Of things. Yeah. Randall on your county website, do they display the sale price? Like do they record sale prices?

Robert Grand (35:41):

Yeah, yeah. Yeah. Like

Tim Murphy (35:44):

I got a buddy down in Texas and they do not record sale price. So when you, when the county records the sale of a property, they do not document the sale price of that property, which I thought, wow, that doesn't help you. But in, in the counties, it's a, once they record it, you know, what that property was sold for. And then you can, so that is one of the tools that I use to really prove like, cause they take literally the purchase agreement. And so when I'm like, okay, well what did they buy this thing for? Cause I saw maybe I found what they sold it for at the ARV. And then I come and dig back, well, what did they actually buy this thing for? And th and now I know the gap and then I can run the numbers. And now I have a model.

Tim Murphy (36:27):

See, that's how I've created my models is that I'm like, okay, I have this, I, I'm a really good agent. I have this idea of what the ARV is, but now I gotta back this thing out to create a model, you know, with construction costs, carrying costs, all those different things. And then what, what should I expect to buy it at? And I make a lot of my buying decisions dependent on that and that tool, which is my county websites. Because if someone else paid, like, let's say last year, someone paid two 20 for this house. And now I'm looking at paying 2 75 for this house. I'm on a year to 7,500, that big of a margin. I don't know if I'm going to do that. Is that really a smart decision? Because I see that these guys made out pretty well. I see that they achieve this, our ARV.

Tim Murphy (37:11):

I know what my costs are. You know what I mean? So that's 1, 1, 2, I'm glad you brought that up. Cause I just thought about that is that a, if your county website displays both purchase price when they initially acquire, and then also you can obviously see ERB on a, on an agent website or on the county website. That is an awesome tool to use because now you can create a model and once you create a model in an area, now you can just prove that model as you watch and pay attention to what's going on. And I'll tell you that if you start doing that as a wholesaler, you will have a lot more success selling it to a guy like Bob and I, and then eventually one day you will be Bob and I doing your own rehabs. And you will have a, you have reduced your risk drastically if you have created a model because Bob, I know you have a model for a rancher in your area. Yeah,

Robert Grand (37:58):

Yeah, totally. Yeah. I mean, I think exactly what you just said. You know, when we look at, you know, our rancher, obviously any flip project we want to do, we're conservative and we want to make, you know, 75 K per project, you know, which some to some people it's a lot, you know, some people it's not, but when you're looking at entry-level homes and you can make 75 K per project, that's, you know, you're sinking your money into it. And your true net on the back end is 75. K. We love that. And we pass on a lot of deals. So when you think, like in my brain, I know like when those numbers hit, if I can get at least 75 K out of it, it's awesome. We scored a house the other day, it'll be a 50 seller waited for, you know, four or five months for the same to go through probate.

Robert Grand (38:41):

They only wanted 135,000 for it, you know? So it's like, that's a home run, right. So if it's over 75, K you know you know, 75 K to me is like, I've, I've struck a single right. You know, if I'm making over a hundred, I'm on third base. And if I get over that, that's a home run, you know, like that's kinda how I see it in my world, you know, they can model wise and then, and then working back exactly how you just said it, you know, it's like, you know, where, what are my, what's my model for my resources and figuring that out per area. And that's the one thing I've noticed, you know, I tend, I kind of thought real estate, you know, cause I'm kinda more local and I haven't jumped other states and we're looking at other states it's, it's so interesting how different every other state is and how they do things, you know, and whether a deed of trust or a mortgage state, or you know, what they do for title, you know, and all that type of stuff.

Robert Grand (39:26):

And so you have to figure out the exact system in your area and our system is exactly, it's so streamlined, you know, because we go out, we look at a property, we get the call, look at a property. We comp it. We, my brother goes out, does the quick, quick numbers, if it pencils, he brings it to me, we start deep diving into it. We start both looking at the comps. I say, yeah, I trust your comps. This and that. I here's what I think. And then, then he comes up with the final project, you know, spreadsheet. It's like, okay, here's what it is. Here's what we can offer. All right, let's offer it. Let's see what happens, you know? And and that's our model. And if we score the home, run out of it,

Tim Murphy (40:04):

I think we've summed up, know your numbers from a 30,000 foot view. So I want to kick it off or ended off with, you know, share a story or something to, to our people here, a clear picture as to why we live by the numbers. Why is this so important to know and understand?

Robert Grand (40:25):

So why are the numbers so important to understand a story for me? I mean, it goes back to the apartment complex that we just bought, right? Like we paid 600,000 for this apartment complex. It's going to be 17 units. It's a strip mall style thing, kind of three buildings. And to me, you know, it's like, it's run down this and that, you know, it's $600,000 to a lot of people. That's a huge amount of money. It's a huge amount of money to me, the biggest project ever looking at the projection of the numbers, you know, being able to take the numbers and say, does that make sense? You know, and, and this was a wholesale deal. So they made out well on it. So they probably locked it up for 500. We paid them 600, they'd probably made a hundred, right. So that's a great example of that wholesaler, knowing the numbers themselves, knowing that there's value here and not trying to take too much of that value.

Robert Grand (41:18):

So we'd lock it up because we know our numbers, we know our area, we're able to lock it up before the showing of the property to other investors. So we already owned it when everybody else was looking at it, which I thought was kind of cool. Cause we're so dialed on those numbers. And on the flip side, you know knowing how to think, okay, when we're done with construction, we estimated to be this, we know we can increase the rents to this. We know that the future value of this property is going to be this, you know, say it's like 1.2, 1.3 million. We know we have, you know, $500,000 just sitting there. So it's a home run, right? So we see that and we can quickly align because we know those numbers and because I'm not playing riverboat gambler, you know, if I were the riverboat gambler, I'd come in there and be like, God, I really want this.

Robert Grand (42:02):

I see, I know there's big numbers. I'm not looking at it. I'm not looking at the construction that's needed. I'm not doing this. It's like he goes in there and throws it, you know, a seven or $800,000 price tag on it. You know, he gets out there and then some riverboat gambler buys it and then they have to rehab. It, run into a bunch of costs. And all of a sudden they're into this thing for 1.1, and it's only worth 1.2, 1.3, they still make money. Right. Or maybe they missed the boat altogether and they lose their money on it. But in the end, you know, if they would have played it by the numbers, they would be able to see it, like my brother and I saw that deal. And then we were like, we've got to do this deal. We got to pull the trigger. How can we make this happen as fast as possible?

Tim Murphy (42:42):

I think too, though, in that deal, one of your biggest variables that you have a big competitive edge on is the construction cost. Because number one, you're going into your biggest deal. Number one, number two, you're going into a deal that you've kind of deal that you've never done, which is a multi-family deal. And number two, there is a ton of remodeling that's going to happen in that project. So the fact that you're a GC, you know, and, and you know, your numbers when it comes to construction costs. Right,

Robert Grand (43:12):

Right. Yeah, totally. Yeah. And I mean that, and that's exactly it. Like I know those numbers. So that way, when I do start hiring the people, I know I can stay within those parameters, you know? And, and that, and that's the most important thing. It's why it comes back down to the numbers. If, if I were just some, you know, I love the riverboat gambler. Cause I just put paint such a great pitcher. Dude, I fire that guy. You just start throwing money at that project. Right. You're just like, boom, start chucking money, call this contractor. Let's start working. Let's do that. Like I had a friend the other day, he told me he was remodeling his bathroom in his house and he goes, he goes, yeah, the contractor came back and I go, oh cool. What was the, what's the cost on a remodel?

Robert Grand (43:47):

I'm always wondering, you know, homeowners, what they get for remodeling and this and that versus what I get, you know? And he goes, oh, I don't know. What do you mean? You don't know? He goes, I didn't tell him there was a budget, but you didn't tell a general contractor, there was a budget on your bathroom. He was like, no, I just told him to get it done. I go, dude, you call me up. I'll get it done for you with no budget. Like this is going to be a $30,000 back. I'm putting marble down. I was just like, it blew my mind. You know? And so that's like a great example of somebody who's just like, just get it done versus me. And you were like, what's the toilet cost? What's the faucet cost. What's the countertop. What's the floor. What's the demo cost. What's the shower costs. What's this cost, you know, and I'm breaking it all. What's the permit cost. Okay. In the end, did I hit my number? Did I miss my number? How can I improve next time? No,

Tim Murphy (44:38):

Your numbers, man, Bob nailed it right there. Know your numbers because if you know your numbers, you're going to reduce your risk. If you reduce your risk, you're going to make a profit. And if you make a profit, you're going to end up living life on your terms. So you know what guys we're going to on this podcast and come back for the next episode of the value to an investor podcast.

Speaker 3 (45:04):

Thanks for listening to the value driven investor podcast, where we lead by giving for more information about our community and what's new visit value driven investor.com. The value-driven investor podcast was produced by digital legend media in Minneapolis. Build the or legend digital legend media.com.