Author Topic: Evaluating a Property  (Read 3208 times)

Bourbon

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Evaluating a Property
« on: April 30, 2014, 09:10:36 PM »
Iím preparing to look for 1-2 properties to invest in this year, and I donít have a solid method to evaluate them.  In my mind I need to find or develop a spreadsheet that can run some basic calculations and couple that with personal knowledge of the area.  Just not sure where to start.

What I do have in my head is the 1% rule.  I also have the notion that I need to avoid the MLS and find advanced deals, but this is one I saw today after driving past the house every morning on my way to work.  I was curious and pulled up the listing.

http://www.zillow.com/homedetails/1247-S-Brook-St-Louisville-KY-40203/95203908_zpid/

Seller is an LLC(has another home in city for sale as well), and the house is asking $139,900.  3 unit old Victorian building in a high rental area between a college campus and downtown.  I once lived in the same area, seems to be gentrifying/cleaning up some, but is block by block and still lots of homes that need a renovation.  Current rents total $1760 ($460, $650, and $650).  Property taxes run 1.3% annually of assessed value.  Currently employed full time, just by looking at zillow rates, I Expect to get a loan between 4.5-5% or better, property insurance to be ~$700-$800.  Can reach out to the mortgage broker I have worked with in the past for a real quote.

Is it worth looking at and estimating repairs?  Should I look more into off MLS listings(auctions, pockets, wholesale)?  I've reached out to a local young investor I found on BP and plan to meet with him soon for some face to face mentoring.

Appreciate any help!  I have one fake rental(former residence, so far doing well but is under the 1% rule) and am new to purchasing with the intent to landlord.  Trying to find my way off the fence.

arebelspy

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Re: Evaluating a Property
« Reply #1 on: May 01, 2014, 07:46:00 AM »
(Reposting from PM so others can chime in.)

I'd likely be trying to get a better deal on that, even if it didn't need any repairs, because 3 units = 3 tenants = more work.  You should be getting closer to 2% for something like that.  Is it in a high appreciation area?

The best thing to do is find an investor friendly real estate agent that will set you up on an MLS search that you'll get results for daily, and look and see every day what is available.  You'll soon start to learn the market and see what is, and isn't, a bargain.
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elaine amj

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Re: Evaluating a Property
« Reply #2 on: May 01, 2014, 09:25:48 AM »
We are in the same boat as you - a lot of learning to do. The 1% rule sounds like a good place to start. Years ago my husband bought a place to rent out and his "rule" was that rent should cover mortgage and expenses. We currently own 2 rental places that both follow about the 1% rule. While we've had some months of vacancies, over the last 15 years of owning, my husband has typically managed to get decent, long-term tenants who do not trash the place.

We are thinking of looking for a multiplex - something like the place you are looking at. Definitely have similar types of questions you are having right now.

I like the suggestion of following MLS regularly so that we get to learn the market. My main worry is we will get too excited and jump on the first opportunity we see. Will have to force ourselves to be patient and watch and learn first.

SwordGuy

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Re: Evaluating a Property
« Reply #3 on: May 01, 2014, 09:52:37 AM »
Check out "What every real estate investor needs to know about cash flow and 36 other key financial measures" by frank gallinelli.

Easy to read and will tell you what you need to know.

Bourbon

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Re: Evaluating a Property
« Reply #4 on: May 01, 2014, 12:56:11 PM »
Check out "What every real estate investor needs to know about cash flow and 36 other key financial measures" by frank gallinelli.

Easy to read and will tell you what you need to know.

Will pick it up.  I've looked into a few of the real estate books in the top sticky, but could use one more focused on reliable metrics.

My current rental was my previous home, and seems to be not a failure so far but I don't think it is a deal anyone would have jumped on.  It is a 4/2 SFR, purchased at $145k that I would value at $170k right now.  Renting at $1450 currently,  and paying the mortgage and some extra. 

I'm envisioning a go to sheet where I can plug in some values(purchase price, # units, Estimated costs, Estimated Rents) and get some idea of how good a deal it is.  Then I can troll through the MLS and any off MLS deals I can find, get a good baseline and know when to act on a spectacular deal. 


MaxRules

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Re: Evaluating a Property
« Reply #5 on: May 01, 2014, 09:08:26 PM »
I am currently doing the same search as you. I've looked at some multi-plex units but I think I'll wait until I have more experience in single family rent houses. I have also been looking, mostly using the MLS and my real estate license, for a house to repair and resell. I have put in a few offers over the past six months and have come up with nothing. I'm being picky and taking it slow, but I've noticed a few things about this stuff. First, many people involved in the purchasing of investment real estate is as crooked as an old fence post. The person who gets to purchase the property does not seem to be based on the offer you make but rather who you know. I never expected it to be this way but I guess it happens anytime large profits are up for grabs. I won't go into detail since I'm sure you will discover this soon enough. You won't lose money directly but you won't get the property for reasons that are just way too fishy. Oh well...
Second thing is this is a really enjoyable way to make money if it weren't for the above mentioned issue. To me it's refreshing to always do something with new variables. Looking up a new property, researching it, and the thrill of acquiring it eventually. Stay honest and let the good times roll!

arebelspy

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Re: Evaluating a Property
« Reply #6 on: May 02, 2014, 07:15:14 AM »
Check out "What every real estate investor needs to know about cash flow and 36 other key financial measures" by frank gallinelli.

Easy to read and will tell you what you need to know.

It'll tell you how to calculate certain metrics, but it won't tell you if they're good or bad - that's a valuation you have  to determine.  Definitely pick it up, but realize that you have to do analysis beyond "GRM is 4.38."  Is that good?  Bad? It depends.

I'm envisioning a go to sheet where I can plug in some values(purchase price, # units, Estimated costs, Estimated Rents) and get some idea of how good a deal it is.  Then I can troll through the MLS and any off MLS deals I can find, get a good baseline and know when to act on a spectacular deal. 

Just this sentence alone shows you have a lot more learning to do about real estate.  :)

The problem with this is that every market is different.  A spreadsheet for Memphis won't work for Dallas (let alone markets way on opposite ends of the spectrum, like Columbus and San Francisco).

A deal is relative to the local market.  If you can buy something for 100k that rents for 1000 (1% rule), that may be great in some areas (where properties that rent for 1000 and are in the same shape and neighborhood as your potential deal typically sell for 200k) or it may be a terrible deal (where properties that rent for 1000 and are in the same shape and neighborhood as your potential deal typically sell for 50k).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Bourbon

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Re: Evaluating a Property
« Reply #7 on: May 02, 2014, 07:37:36 AM »

Just this sentence alone shows you have a lot more learning to do about real estate.  :)


Could not agree more.