We work with a lot of individuals who are interested in buying real estate investment properties in Nationwide. Some of them are seasoned investors, while others are still learning the ropes. Many do not know how to Evaluate Real Estate Deals to make sure they will produce great returns.
As a company, we Evaluate Real Estate deals every day on properties and passing them on to real estate investors at discounted prices, we believe it’s important to share resources on how to evaluate a real estate investment deal effectively. This is relevant not just in Nationwide, but in any market across the country.
At its core, evaluating a real estate deal is a straightforward process. Whether you’re looking to buy properties for wholesale, hold them for rental income, or for any other purpose, the key is to ensure that you’re buying them at the right price.
So, let’s dive into the details.
How To Evaluate Real Estate Deals – (for single family houses)
There are just a few main elements when you’re evaluating a single family real estate deal.
- The cost of repairs needed to bring the property up to good condition
- The after repair market value of the property (what it can sell for once it’s fixed up)
- If you’re planning to buy and hold for rental income: the potential rental income and the monthly mortgage payment (debt service) to ensure positive cash flow
- Additional factors to consider include: location, zoning, and property tax.
There are other things you can (and should) look at to help Evaluate Real Estate Deals… but those 3 are the main important things to look at first.
Cost of Repairs
One of the things you should do when you are looking at a property is find out how much it’ll cost you to fix it up to a point where it’s in great shape. In other words, the cost of repairs. This could be a new roof if it needs it, carpet, paint, a new kitchen, yard, maybe even more.When evaluating a property, it is important to determine the cost of repairs needed to bring it to a desirable condition. This includes assessing the cost for any necessary repairs such as new roof, replacement of carpet or flooring, painting, remodeling the kitchen, landscaping, and any other repairs that may be needed. This information will help you understand the total cost of the property and make a more informed decision.
To determine an accurate estimate for the cost of repairs, it is recommended to seek the expertise of local contractors. Build a relationship with a contractor or two in your area and invite them to walk through the properties with you during your initial visits. Have them provide quotes for the repair costs, which can then be included in your offer. This will provide a better understanding of the total cost of the property and help make a more informed decision.
After Repair Market Value
After Repair Market Value (ARMV) is a crucial aspect to consider when evaluating a property. It refers to the estimated value of a property after it has been repaired and brought up to a desirable condition. To determine the ARMV, research the selling prices of similar properties in the same area within the past three months. It’s important to focus on the actual selling prices, not the listing prices. By obtaining an accurate ARMV, you can ensure that you don’t overpay for a property and that you can sell it for a profit in the short-term. To find the ARMV, you can use online services, consult with a trusted realtor or appraiser, or even reach out to several realtors and appraisers to get their estimates.
Buy And Hold For Rental
If you’re planning to buy and hold a property for rental income, cash flow is the key factor to consider while you Evaluate Real Estate Properties. To determine the cash flow of a property, you need to know the monthly mortgage payment and the potential rental income. First, consult with a mortgage broker or private lender to get an estimate of the monthly mortgage payment for the specific property. Then, research the typical rental rates for similar properties in the area to estimate the potential monthly rental income. To ensure positive cash flow, subtract the estimated monthly mortgage payment from the estimated monthly rental income. Additionally, it’s important to factor in other expenses such as property taxes, maintenance costs, property management fees, and reserves for future repairs when determining the purchase price that will allow for the desired cash flow.
So, your offer price here should be:
Monthly Mortgage – Monthly Rents – Operating Expenses – Taxes & Insurance – Monthly Cash Flow = Offer
Simple enough right?
The cool thing is, the more you’re bringing into the deal in cash… the lower your mortgage is.
Making An Offer
We’ve been talking about how to look at the numbers and analyze a real estate deal.
From there, just make an offer. Many times the properties we let you know about will already be so deeply discounted that we get multiple offers… often above our asking price.
So, if you really want a property… find out what is the bare max you could buy the property at… and offer that. Otherwise you may lose the deal because someone else is likely making an offer too.
With that said, the golden rule in real estate is to never over pay for a property. That’s why our own deal analyzing criteria is so darn strict… and why our buyers (like you) get such great deals.
I hope this little tutorial has helped you sharpen up your real estate deal analyzing skills… and we really look forward to working with you in the near future.
If you have any questions at all on how to Evaluate Real Estate deals… don’t hesitate to contact us anytime for anything.
Happy investing!