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Posted over 9 years ago

All You Need is to Know Everything

Normal 1410615819 Just Know Everything

Bigger Pockets is great for starting to understand all the elements that make a good deal. You only really need to gain mastery in 10-12 areas and you're set to go. Pay attention to the details and whatever you do don't overthink it and just get started. You make your money going in. Make sure you have clear criteria and make lot's offers. Oh, and everyone screws up!

EEK!

Whenever I feel overwhelmed I try to look at all the things I don't know what to do with and pick only one. I then work at learning how to solve that and move on to the next. It allows for at least the illusion of control.

I started with initial deal analysis. Everyone says that's really important.

This article really helped understanding some of the basics:

http://www.biggerpockets.com/renewsblog/2010/06/30...

I made my own spreadsheet so that I could start analyzing deals, even digging back into my college papers to remember how to calculate monthly mortgage payments.

Armed with a better understanding of NOI and CAP Rate, an ability to nod knowingly when someone mentions a cash on cash return I headed over to the MLS to look at Multifamily homes. All I was trying to do was analyze as many properties as possible and identify those that are worth analyzing in greater detail. I was not running comps or any other due diligence on the data provided in the listings.

Having looked at 102 properties, only 38 had enough data on the listing to do any kind of analysis. 21 of these met my minimum criteria of a 6% cap rate and $100 per door cash flow.

You start to notice interesting things as you look at more properties. How lazy listing agents are. How selective ROI and Cash flow calculations on listings are. You start seeing what the max price would be you can offer to make something cash flow, which is what is so useful about having a spreadsheet to analyze with, you can play around with the numbers and start to understand the effect each has on the deal. For instance, I noticed that on some listings the price wasn't shown but with the CAP rate and the NOI I could reverse engineer the total cost and get very close to the asking price.

Following this excercise I am left with questions I'll need to investigate such as:

Should I break out withholding for general maintainence expenses and capital expenses into different line items and how much as a percentage of rent should each be?

How do I calculate depreciation and interest payments as expenses for tax purposes?

How much should I calculate closing costs to be? Is this fixed or a percentage of the size of the deal?

Next step is to investigate comps for the 21 properties that made it through the first filter and see if any of them actual are worth a deal.


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