Simple Property Analysis Questions

[Brent Kruger]

Good afternoon everyone!

My name is Brent and I am another young hopeful who is growing wise to the gains from real estate versus the stock market. I work as a credit analyst for a bank and do a lot of modeling as is. Right now I am challenging myself to model and review as many properties as I can and select winners for possible visits and more in depth review. I frankly feel that due to my knowledge of financial modeling related to real estate ( ie: Debt service, NOI, CoC ROI, and other basics) I carry a burden of trying to find out what information is usable at what stage or even at all. So I have a few assumption questions for buy and hold real estate investors.

1. How do you estimate the amount of cash necessary for remodel up front? I have heard individuals say numbers as high 20% regardless of the condition of the property. Variable likes this influence long run calculations so fair estimation here has the potential to add great value. (in my inexperienced opinion)

2. What, in your minds, its the best method for pricing a rental property? I know that some answers will say learn about your market or see what other tenants are paying. that's great advice! I guess my real question is how do you find a happy medium between trying to get income to cover costs but keep the number low enough to intice renters?

3. Are there any good rules of thumb ( besides just the 2% test) that are helpful for speedy analysis?

4. Do most of you use type of CapEx reserve calculation like they recommend in some books?

5. The final question I have is hopefully much easier for you guys to answer. What advice would give to someone that may have trouble pulling the trigger on good deals? any words to live by?

[Kyle Scofield]

Hello @Brent Kruger ,  I think I might be able to help you with some of these questions!

1. There really isn't a quick way to estimate repair values, every house is in different in the repairs they need and rules of thumb for this category is a hard thing to predict.

2. I would say this all comes down to your location, the type of tenant you want, and the condition of your rental. If you want high-end renters you better have some high-end furnishings.. If you're okay with lower rents, then you'll get tenants looking for those prices. But as far as finding a way to entice renters.. I'd say you pretty much hit it on the head to learn your market and see what every one else is charging.

3. The ultimate beginner's guide here on the site has all the rules of thumb and basics that you would ever need! www.biggerpockets.com/ubg

4. I use the recommended 10-15% for CapEx items.. But if I know the year the roof was renewed or the water heater replaced,, then I will use a spreadsheet provided from the book on estimating rehab costs by Jay Scott to get an even more accurate estimate, then give myself some extra room

5. For getting over fear, I'm not sure if there's anything I could say that other people haven't already said.. like Nike's slogan.. "Just do it."

Hope this helps you out Brent!