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[Video] How I Quickly Analyze an Investment Property

by Brandon Turner on February 15, 2013 · 15 comments

  
Investment Property

There are a lot of investment properties out there.

Hundreds, thousands, maybe tens of thousands (depending on where you live.) So, obviously, it’s impossible to go and look at every single one. So how do you choose which ones to look at, what to spend your time analyzing, and how the heck do you even analyze it?

I’ve had a few questions lately about how I analyze an investment property – so today I decided to make a quick video showing exactly how I do it. This is not a comprehensive analysis, but just a quick, 5 minute look at what kind of income the property will provide, based on the income, the expenses, and the 50% rule. This property is an actual property, currently listed for sale in my town – so this is about as real as it gets! Check it out, and let me know your thoughts below in the comments. What would you offer on this property?

How to Analyze an Investment Property [Video]

Thoughts?

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{ 15 comments… read them below or add one }

Samantha February 16, 2013 at 8:36 am

Good video Brandon, you should follow up with this quick analysis video with a more in depth analysis video so users can visually see the difference in approach to the two

Reply

Brandon Turner February 16, 2013 at 8:56 am

Hey Samantha, definitely a good idea. In fact, I think we’ll have a free webinar soon where I’ll do just that, so people can ask questions and such as well. Keep an eye out!

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Brian February 16, 2013 at 9:37 am

Thanks for compiling this quick evaluation on a property Brandon!
I agree with Samantha. That contrast would be very helpful!

Also, how come no taxes and insurance when you quickly evaluate a property?

Thanks
Brian

Reply

Brandon Turner February 17, 2013 at 4:10 pm

Thanks Brian. I don’t include the taxes and insurance because I count them as part of the “50%” in expenses. When I do a more detailed analysis – I will go into my spreadsheet and actually come up with the more specific numbers.

I’ll try to work on a more detailed analysis of this as well this week!

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Matthew J Roybal February 16, 2013 at 10:14 am

Hey Brandon,

Great video! It was much more engaging to see that in video than just text. I was wondering about the 50% rule you go by. You explained the 1st half very well in terms of paying the mortgage and interest and counting the rest as your cash flow. The other half you said goes to expenses. How exactly did that break down? I’m assumming your taxes and insurance doesn’t add up to the 50% so what happens to the rest? Are you using it for repairs and throwing the rest into reserves for vacancies, etc?

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Brandon Turner February 17, 2013 at 4:04 pm

Thanks Matthew, I agree- video is much more fun that just math numbers. So, the 50% rule is just a rule-of-thumb that says all expenses, including taxes/insurance, come to about 50% of the income. I’ve found this to be very true with my multifamily properties – over time, on average, it’s 50%. So yeah, there are typical monthly charges like water, sewer, garbage, power (in common areas), yard work, maintenance, legal stuff, printer ink, maintenance, repairs, refrigerators, carpet, vacancies, and a million other little things. When purchasing a property, it would be imperative to actually find out how much these charges would be. And yes, I put extra stuff in a reserve account. Does that make sense? Thanks for the question!

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Edita February 17, 2013 at 3:51 pm

Brandon,
great article, as usual!
I agree with you 100% that you need to know the AREA very well, to avoid purchasing, for example, a 4 plex with all 1brs at a great price in the area where there are mostly 2 and 3 bedrooms, and very few 1 br…

1.How do you analyze the area if you are out of town though?
2.I think the 1st step would be to find an area/neighborhood you want to invest in, and then run the numbers on ROI and cashflow. What do you think?
Here’s what I do:
-city data.com (demographics, major employers, pop. growth)
-rent o meter (find aout rents)
-trulia and zillow for recent sales cpmps

3.What other tools/websites would you recommend ?
4.Do you look at when the property was built? Usually anything older than 15-20 years will need more upkeep, unless it was rehabbed not long ago.

Thanks!
Edita

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Brandon Turner February 17, 2013 at 4:08 pm

Thanks Edita,

Analyzing out of town – that would be tough. Personally, i’d have to drive (or fly) there and look around. Or call Brokers and ask. But yes, I agree- finding a location is probably step one. That’s the first thing I looked at was to make sure it wasn’t on “B Street” or near it. That would have probably been a deal killer (though, for a certain price, anything could be wholesaled to someone who does buy in those areas)

In washington, I really like “www.themlsonline.com” but for most states it just re-directs people to Realtor.com when searching. To research local rent, I’ll check the local newspaper and Craigslist – and with Craigslist’s new “Map Feature” it makes that a breeze.

Age is definitely a consideration, but in my area- everything is old. The town went through a boom in the 30’s and 40’s and has been stagnant ever since. So I expect the problems from the get-go.

Thanks for the comment!

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Ravi Rai February 19, 2013 at 4:17 pm

We did something very similar when we bought our first property last year. I really liked the quick analysis, looking forward to the detailed webinar.

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Terry P February 20, 2013 at 9:49 am

Just what I was looking for, thanks Brandon…I’m looking fwd to the webinar too. I was thinking about developing a rent value per sq ft for quick analysis too. I’d go look at the finish, sq ft, rent of say three. Your thoughts?

Also, just read Ben Leybovich blog on how much of an impact the property drives the tenant and betters the 50% rule. So I would think if one could find a low rental in an area with high price houses that would be ideal? I’d be using those high $ homes and rents to determine a rent per sq ft for smaller ones. Make sense?

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Mark March 2, 2013 at 12:20 pm

Loved the quick analysis, and your 50% rule. I am a newbee in real estate investing, and never thought of including the “vacancy” into the deal. My fiance and I will be buying properties in a few months when I move to her town.

Thank you. Looking for your webinar on property analysis.

Mark Gould

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Mark Gould March 2, 2013 at 3:36 pm

You mentioned that you like to receive $100.00/ month per unit cash flow on multi family properties. What would be a good number to get per month cash flow on a single family residence?

Mark

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Brandon Turner March 2, 2013 at 4:27 pm

Hey Mark,

So – yeah, $100 is my bare minimum, but I really like to see more. AND that’s only after being super conservative, so in all reality, it ends up being higher hopefully. But, for a single family homes I typically shoot for at least $200 – but it’s pretty easy to get much higher.

Another factor to consider is down payment – it’s easy to get higher cashflow with a higher down payment. I want to see $100 per month, per unit with nothing down at all. If I put money down, I wanna see higher.

Hope that helps!

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steve March 15, 2013 at 10:17 am

Hey Brandon,
I know that you once gave anyone a chance to buy your spreadsheet, is that still a possibility? If so, where can I get to download it.

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Steve Johnson October 27, 2013 at 8:05 pm

You mention learn a lot about a small area rather than a little about a large area. Whats that size roughly? And holy cow, this video did help tons. I listened to the 40th podcast which I think linked to this and its very helpful to see how someone really runs the numbers. And, after response #1 above, do you indeed have a follow up webinar with in depth analysis?

Thanks for all your work and your willingness to share!

Reply

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