The (MPO) Maximum Profitable Offer is calculated by first determining what the house will be worth after renovation – the ARV (After Repaired Value); less the rehab dollars required; less the Buy/Sell/Hold (B/S/H) costs; less profit for the rehabber less the Assignment Fee (your profit as a wholesaler). Note: If you plan to rehab the house yourself, just delete the Assignment Fee from the formula.

MPO = ARV – Rehab – B/S/H – Investor Profit – Assignment Fee

So let’s break that down a little further. To determine the ARV, study comparable sales data. Comparable sales are those properties which sold in the last 6 months to 1 year, and within ½ to 1 mile from the subject house – the more recent the comps and the closer to the subject property the better. But other factors must be considered as well. The more characteristics between the properties that are similar, the more valid the data.

Make sure that the house itself is similar in square footage, bedrooms and baths, age, style, and architecture. Don’t worry about condition except as it will affect the amount of rehab dollars required. Next, look at the neighborhood and the individual street. Do they look the same? Or is the comparable property on a beautiful street while the subject property is on a street riddled with empty littered lots and boarded up houses? The point is to view the potential investment as your end homeowner occupant will. If they could buy your completed investment on the bad street, or a house on the beautiful street – either for $150,000 – which would they choose? The other house of course. Which means your house is not worth the same – it must sell for less to attract a buyer.

Rehab dollars differ from renovator to renovator depending whether they do the work themselves, or use cheap subs, or use an expensive general contractor. The scope of the work should be the same – it is whatever is required to make the investment look like the comparable houses (unless the plan is to sell well under market value). I do not attempt to obtain all of the various contractor bids when I am making offers. All the real deals would be sold before I’d ever have an offer together! Instead I’ve developed ranges of rehab dollars based on the overall condition of the home. Is it an exact science? No, but neither are the bids – there will always be something missed. So why not work with a guide that is probably 90% accurate and allows for quick offers?

Buy/Sell/Hold costs include expenses such as appraisals, attorney fees, title search & title insurance, loan origination fees, debt service, utilities, insurance, taxes, real estate commissions, and closing fees paid on behalf of the end buyer. Again, these costs vary depending on each investor’s individual situation. In the Atlanta area, 15% of the ARV seems to be a good average allocation for B/S/H costs. If you are the renovator, calculate your specific B/S/H costs, then utilize that percentage for future offers.

Investor Profit is the amount you should leave in the deal for the investor buyer to make the deal attractive. Obviously the higher the better. In this current market the minimum is $25,000 and work up based on cost of the house and scope of rehab.

Assignment Fee is your profit in the deal. Don’t short yourself. You should use between $8-10,000 otherwise the deals won’t be worth it to you.

That’s it. That’s how you calculate the most you’ll pay for a property. But that’s not what you SHOULD pay. It is the maximum you’ll pay. It is the deal-breaker. You will not pay one penny over the MPO. Your negotiations should lead you as far below the MPO as possible. The difference in amounts is additional profit in your pocket. What you SHOULD pay is the minimum price below the MPO that the seller will accept.

Use this formula to make offers and you’ll never pay too much.

Expect abundance,

Lou Castillo

To best way and the one & only way to build and maintain a highly profitable real estate investing business is to uncover motivated sellers. Period. You can’t get away from it and expect to have consistent, predictable results each and every month. Essentially three are two ways you can go about locating potential sellers:

1. Driving for Dollars: You do all of the work driving around town looking at scores of houses you’re never going to buy. This includes calling FSBO (For Sale By Owner)  ads; making outbound phone calls looking for motivated sellers; knocking on doors of homeowners facing foreclosure attempting to convince them that you are the solution; or you can look at Realtor listed houses with all the keywords that denote they are motivated…OR…
2. Marketing for Dollars: Implement a marketing campaign and allow it to do all of the work for you and have motivated sellers calling you! Think about it, when do you have more leverage: when you make the call to a potential seller or when they call you? Obviously it’s when they call you, right? o not only is marketing an easier route to locating potential sellers, it is also more effective.

With a properly executed marketing campaign,  motivated, even desperate homeowners will call you begging for you to buy their house. That’s right, they’ll call you! And often they’ll say something like “Please take this house off my back. You can have it. Whatever you need to do I don’t care just as long as I don’t have to deal with this house anymore.

Now is that a motivated seller, or what? With just a few calls like that each month, you’ll make some serious money…and you’ll do it working from your desk – not driving around town wasting time and gasoline.

All you have to do is create and implement a compelling marketing campaign that drives motivated sellers to call you. Show your prospects how you can solve their problem and they will call you. The one common denominator I find in all of my successful students is that they have a marketing plan, and they follow it. They implement without fail!

You, too, can have a tremendously profitable business if you build with marketing as the foundation. Develop and implement your campaign consistently and you’ll never worry about having enough leads again.

Expect abundance,

Lou Castillo

Getting started I had a goal of making $20,000 a month. That’s all I focused on: How could I make $20,000 a month? I listened to all the courses and read all of the books talking about the mythical $20,000 months in real estate and yet it wasn’t happening for me. In fact, what was happening was month after month of a big fat zero, nothing, nada. So of course I became cynical. This isn’t for real. You can’t really make $20,000 a month in real estate. Plus, even if I do it once, is it going to take forever to do it again? Arrrgggh! I can’t handle that.

Then I discovered the real secret and with it came not just $20,000 months, but $30,000; $50,000; $80,000; even $100,000 months in REAL ESTATE! Month after month. What do you know it was true after all. It wasn’t just a pack of lies that a bunch of conspirators had formulated just to frustrate me.

Now I’m on the other side and I watch so many others going to what seems much be some kind of rite of initiation of something, They have the same dreams and aspirations as I did. They face the same frustration. And they are becoming just as cynical. Is that you?

Let me help you out and reveal the secret that I took so long to discover. Unfortunately you’re going to be as disappointed as Dorothy when the true “wizard” of Oz was revealed behind the curtain.

OK, here’s the big secret. Are you ready? Here you go…

Don’t focus on the dollars.

That’s right. That’s it. That’s the big secret that will change your financial future if you follow the advice.

Well, maybe I should

clarify a little bit so it

has a deeper meaning and you’ll start to see me as the wise sage…or should I say “wizard”?

You see, when you focus on the dollars…like $20,000 a month…you have no way to make it happen. Frustrating right. It’s too big.

I learned that you eat an elephant one bite at a time. So let’s approach this the same way. Let’s break it down. If you want to make $20,000 a month, how many deals per month do you need to do? Well, you should be able to make $10,000 a deal, so that means you need two deals. OK, that already sounds a lot better than $20,000, but how do we get 2 deals?

Well. it takes about 20 leads for every 1 deal. So to do 2 deals you need 40 leads a month. If we break that down further, that’s 1.3 leads per day. Now there’s your focus. Focus on driving in 1.3 leads each and every day. The rest will happen on its own. If you’re not averaging 1.3 leads per day, ask yourself what else do I need to do to get more leads. And let’s define a lead: it is a prospect who is responding to your marketing.

To get your business to take off and soar and make you as much money as you want focus only on lead generation. Never be satisfied with the number of leads you’re getting. Always ask “How can I drive in more leads?” If you focus on leads, $20,000 months will seem like child’s play and you’ll call me the Wizard.

Expect abundance,

Lou Castillo

Have you ever wondered why you labor for hours a day, yet at the end of the month you have no real results to show for it? It’s a common affliction that infects many. It robs you of your time, your energy, and your success. You actually work harder and harder for less and less reward. Time to get off that spinning wheel right?

The answer is simple: Change your habits.

Chances are you have developed a habit of making a long To Do list with every conceivable task listed. The list is overwhelming and you need to start feeling some accomplishment so you look for the easiest, fastest tasks that can be completed and cross off. Here’s the problem…those tasks are usually the least important, will eat up a lot of time completing them all, but offer little in the way of overall results towards your goals.

The good news is that habits can be changed easily with just a little focus. So let’s change this bad habit.

Before you even begin to create a To Do list it is key to setting your goals and objectives. What’s the end game? Where do you want to be at the end of the day? Week? Month? etc…

No sense in planning out a highway route to drive if we have no destination in mind.

Once you’re clear on your objectives, then build your To Do list that supports those objectives. In the end you’ll still have a multitude of tasks. The right habit to create here is how you approach this list. Resist the urge for immediate gratification by working on tasks that can easily be checked off. Instead ask yourself: “What are the top 3 things I can do which will take me furthest towards my goals.” Once you identify those 3 tasks, focus all of your time, attention, and energy towards their completion. Then repeat looking for the next 3 most important tasks.

Start each day committing to only focusing on the 3 most important tasks then define which they are. After just 30 days of modifying your behavior you’ll discover that focusing on the top 3 instead of the easiest 3 is just natural, and best of all: you’ll see much more results in record time.

There is an extra benefit from this process. What happens over time as you complete menial tasks, but never really accomplish anything important? You start to lose all drive and ambition. The reverse is true as well. As you begin to focus on the important tasks and realized success. your energy level and your drive will soar through the roof resulting in even more success.

Commit to changing your habits over the next 30 days and I guarantee you’ll accomplish more over the next month than you ever have before.

Expect abundance,

Lou Castillo

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Expect abundance,

Lou Castillo & Josh Brown

You want to know how to get your prospect to buy something they’re not motivated to buy?

You don’t!

The first step in a good negotiation is to make sure that your prospect is qualified. There’s no sense wasting time talking to a bunch of leads who would never accept your offer.

I have often said that the foundation of successful investing lies with a good marketing campaign (actually that’s true for any business). The next brick up is a proper pre-qualification process.

When I started investing my wife and I looked at literally hundreds of properties that we had no chance of buying.

We spent countless hours driving around town, looking in windows of vacant houses; driving neighborhoods, and submitting offer after offer which usually didn’t even receive a reply.

How absolutely frustrating!

The problem: We weren’t looking at houses with motivated home owners.

The first step in resolving this problem was to create a steady stream of leads. (A lead is defined as a prospect who has responded to your marketing).

Next I spent 10-15 minutes which each lead to make sure that:

(1)    They are motivated
(2)    They owe less on the mortgage than I can pay for the property

If the answer is NOT “yes” to both questions, I simply end the call. No wasted time on the phone. No pointless house visit.

If the answer IS “yes” to both, then I’ll spend quite a bit of time, building rapport, Uncovering their real motivation, and negotiating the deal.

By the time I finally visit a house, I’ll have a contract 80% of the time.

Is that because I am a master negotiator…a silver tongued devil?

No. It’s because I don’t try to sell prime rib to a vegetarian.

Expect abundance,

Lou Castillo & Josh Brown

There has always been a huge demand for private lenders amongst real estate investors, but the demand has hit record levels as more traditional lending sources continue ot dry up.

I know that there is still some confusion as to exactly what a private lender is so let me explain it here. A private lender is just that: a private individual who is willing to make real estate loans. Their goal is to earn higher than market interest rates on their money with a safe, secured real estate loan. The difference between them and a hard money lender (HML)  is that the HML is in the business of making real estate loans to investors and typically charge higher rates, they charge points; and they loan to anyone who meets their criteria.

Any savvy investor realizes that the true profit margins come from leverage. Leverage a small amount of your own money to purchase large amounts of real estate. As the traditional sources of leveraged loans dries up, investors are turning more and more to private lenders for their financing needs. The secret here as an investor is to not let your private lender realize how much demand is in the marketplace. How do you accomplish that? By treating your lending well and never force them to go out shopping for a new borrower. Keep their money in use. Don’t let it sit for long periods of inactivity. Provide them plenty of safeguards: title insurance; hazard insurance; and a reasonable Loan-To-Value (LTV) ratio (70% or less of the ARV).

If you don’t currently have a portfolio of private lenders you need to build one as soon as possible. You don’t find them in the yellow pages or on Google. They are every day individuals who currently have their money invested in low yield vehicles like CDs or IRAs. The advantage you offer is a much higher interest rate yet with  the security of real estate. With the demand for these lenders continuing to increase, you need to build a relationship with potential lenders as soon as possible before someone else beats you to it. Once you have them, treat them like gold because they literally are like gold.

For those of you who have money invested in low yield vehicles like an IRA you definitely need to consider the profitable world or private loans. Most people don’t realize that the IRS allows you to make real estate loans with your IRA if you have a Self Directed IRA. If you don’t it’s easy to rollover your current IRA to a self directed one with a company like Equity Trust (www.TrustETC.com). Once you have a self directed IRA and start making real estate loans, you’ll easily earn 4-5 times the interest you’re currently earning in your regular IRA.

Whether you’re an investor borrowing private funds; or an individual making real estate loans you will profit from the experience. That’s the definition of any good deal, right? When both sides win!

Expect abundance,

Lou Castillo