Beginning Investor Deal Analysis Impasse. Help!

2 Replies

Hello everyone,

I have found a duplex in a C-class midwest neighborhood that I believe is undervalued and presents solid possibilty of a 2%+ rent-to-purchase price ratio, based on comps from around the area. It is in need of a full rehab, which is fine for the price they are asking. Or is it?

I am compiling a hybrid list-both line-by-line, when possible, and general estimation of the renovations needed. However, 1) this will be my first property and 2) I am doing all this from out of state, so 3) I don't really know how much the property needs-there are no pictures of the inside, and I haven't seen it yet.

Here are my questions:

1) How do I get/make an accurate (non rule-of-thumb) estimate of rehab costs? Is there any way to do so without potentially sullying the relationship with my future real estate agent/seller? (I have searched online for prices in the area of the things I know it needs-mostly exterior, but what about inside?)

2) Is it appropriate to ask the realtor to do a walk through while taking a video of the property? Especially given the fact that I haven't put in an offer yet.

3) If it comes to this point, would you recommend having it inspected by a certified home inspector or by a GC or both? Why?

In general, I am confused about the order, and how we, as investors, get the information to do our analysis before making an offer. I have heard people on BP who have found the deed holder's name via tax records on the property, googled him/her, then called him/her to ask what major repairs would be necessary. Would this be seen as going behind the real estate agent's back?

I've listened to a lot of BP podcasts and read a lot of the forums, but I still don't understand the order of things. I'm sure as a seasoned investor it makes less of a difference because real estate agents know you/can tell you mean business, but as a new investor, I'd like to try to make sure I don't start out on the wrong foot with people who may potentially be on my future real estate team.

Thanks for reading, and I appreciate any input anyone can offer!

@David Hald

Presumably you are somewhat familiar with the market in this area, thus your 2% ratio reference. Is the property already filled with tenants? Also, it appears that you are using the selling agent as your agent as well? I would suggest getting a separate agent if this is the case, and ideally someone with an investor's understanding. The agent may ask you to provide proof of funds or a bank letter so they know that you are serious and not wanting to waste anyone's time. I would ask the agent for references of GC's, and I would also contact other GC's to have them do walk-thru's and get pictures and bids from each (have a system to validate the GC's as well). Set up times with your realtor to show them the property to allow them the chance to view the property, and obviously the sooner the better. Use the realtor as much as possible, it's their job to help you. 

You can have the realtor take video or snap pictures to have them sent to you as well. Again, it's their job to get that sale. Once you have an agreed upon price/contract with the seller, have it inspected and match the two reports up. Getting an inspection report can help you go back to the seller in case something was missed. In any case, you can then contact your GC and have them run you a new number to see what additional costs are going to be and take it back to the seller to see if they will fix it or take money off. I would want to have a number before making an offer anyway.

You should already be able to view the seller's disclosure statement of the property. If not, have your realtor get this so you don't have to contact the seller, unless the property isn't on the market. 

I hope this helps, and good luck to you. I'm sure there are more advanced individuals out there that have a system set up for this. Hopefully one of them can help as well. Good luck!!!

When I find a property not being marketed fully i.e no inside pictures, this usually means there is an inside problem. It can help or hurt you. 

How to find local rehab costs? Materials can estimated through HD or Lowes and then they usually have installers as well. Or call a local GC. 

Have a local Realtor tour and like mentioned, they will ask you for proof of funds or pre-approval to make sure your serious. If I had a buck for every time a buyer told me they were serious but didn't have proof, I'd be a rich man. 

Always have a property inspected. The reports will disclose problems and be your initial eyes and ears. If is warrants further attention, then go visit. Only you know what exactly what you like or don't - I always go with my gut. I.e. there is a property here in town that has a great price and is in decent condition but has been on the market forever. As soon as you visit you see why, there is a big homeless camp across the street. This can't be seen on any photos already published. If I or a personal rep didn't visit there would be no way to know.

Hope that helps.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here