How to Analyze Deals

9 Replies

Good Morning BP!

       After putting down @Brandon Turner 's "The Book on Rental Property Investing" (3rd time reading this awesome book) a question popped in my head and I knew I should jump on here immediately as I want to be more proactive with my studying and taking steps forward to investing and taking action. So my question is this:

I want to start analyzing deals just to do it and use it as practice to sharpen up my analyzing skills. When I read and I go over my plan it seems so easy to me and that I can do it, but once I go on MLS or zillow and All i Have is this picture and small description of the home, I get into this "paralysis by analysis" phase and everything gets all confusing then numbers start to scare me and then I just give up. Im not giving up though now, the best way is to figure this out and I would greatly appreciate if anyone has any advice for this and if they went through the same thing.

My issue are these:

  • How do i figure out what to plug in for my rehab costs?
  • How do I come up with a number for my expenses?
  • What number do I come up with for painting interior or exterior? 
  • How do I estimate a number for my closing costs?
  • How do I estimate expense for capital expenditures in the rent?

When I am reading the book the numbers are spit out so easily but I am just curious of how are those numbers are brought up? Yes I know this is all part of the "analyzing and figuring it out" but I am just looking on some type of direction to start moving so I can practice analyzing deals. I would like to spend an hour a day just practicing and coming up with numbers and figuring out CoCROI.

Do clarify exactly my target market I am interested in Analyzing small multi-family (NJ) homes possibly a duplex since its my first investment and I am trying to gain much experience as I can. Also correct me if I am wrong going about analyzing a down payment. 

Thanks so much guys!

I highly recommend if you are buying small multi-family, you will go with a contractor who can give you estimate.  For holding costs, you calculate interest, insurance, utilities  etc.  I hope this helps.  If you want to figure out how much down payment you need, talk to a mortgage broker.  They will tell you how much you need.  But they need to know the purchase price and repairs amount. 

Originally posted by @Grant Rothenburger :

@Paul D. 

What exactly do you mean "also correct me if I am wrong going about analyzing a down payment"? 

 Hey Grant, yeah I am sorry for leaving that information down. I typed this up as I was leaving for work ad totally skipped the rest off what I was going to write.

Also when I analyze a deal I was thinking when I look at the asking price. The asking Price thats posted on the property I was thinking that I am offering a price that is 20% less than the asking price. "buying right"? I know numbers can vary depending on the market. The new price I would figure a way to come up with a conventional down payment and get a 80% loan. Then I figure out the rehab and work on the house so that in the first year the house will give me a 10% increase in value through "forced appreciation and sweat equity". I also want to clear at least $200 per door of cashflow that I will escrow and reinvest into the property. I am looking to buy and hold.And as the years go buy and the debt is being paid down I hope to have increasing appreciation of the property. Am I thinking on the right path? 

Originally posted by @Yukiko Nakayama :

I highly recommend if you are buying small multi-family, you will go with a contractor who can give you estimate.  For holding costs, you calculate interest, insurance, utilities  etc.  I hope this helps.  If you want to figure out how much down payment you need, talk to a mortgage broker.  They will tell you how much you need.  But they need to know the purchase price and repairs amount. 

Thank you for your answer. Yes it helped. So when I find these houses online are you saying to go out and look at them? What if they have a family in them already? When I analyze the deal are all these numbers there? How do I know when a house looks good enough with numbers to even go look at it? Do I do the 50% rule and the 2% test? Just all these questions and thoughts in my head ha. 

Thanks again!

Originally posted by @Paul D. :
Originally posted by @Grant Rothenburger:

@Paul D. 

What exactly do you mean "also correct me if I am wrong going about analyzing a down payment"? 

 Hey Grant, yeah I am sorry for leaving that information down. I typed this up as I was leaving for work ad totally skipped the rest off what I was going to write.

Also when I analyze a deal I was thinking when I look at the asking price. The asking Price thats posted on the property I was thinking that I am offering a price that is 20% less than the asking price. "buying right"? I know numbers can vary depending on the market. The new price I would figure a way to come up with a conventional down payment and get a 80% loan. Then I figure out the rehab and work on the house so that in the first year the house will give me a 10% increase in value through "forced appreciation and sweat equity". I also want to clear at least $200 per door of cashflow that I will escrow and reinvest into the property. I am looking to buy and hold.And as the years go buy and the debt is being paid down I hope to have increasing appreciation of the property. Am I thinking on the right path? 

To answer your question, yes you are thinking on the right path. Word of caution: appreciation is great and it seems you are thinking about it correctly. Don't ever buy for appreciation, that's how people lost their shirts (one of the reasons) in 2008. Buy for cash flow, pay down the loan and if it appreciates, that is just cherry on the cake. That being said I'm not sure why you would automatically offer 20% less. I don't mind offering low but at the same time, if you build a relationship with someone who brings you consistent deals, it's in your best interest to not low ball them every time. 

Originally posted by @Grant Rothenburger :
Originally posted by @Paul D.:
Originally posted by @Grant Rothenburger:

@Paul D. 

What exactly do you mean "also correct me if I am wrong going about analyzing a down payment"? 

 Hey Grant, yeah I am sorry for leaving that information down. I typed this up as I was leaving for work ad totally skipped the rest off what I was going to write.

Also when I analyze a deal I was thinking when I look at the asking price. The asking Price thats posted on the property I was thinking that I am offering a price that is 20% less than the asking price. "buying right"? I know numbers can vary depending on the market. The new price I would figure a way to come up with a conventional down payment and get a 80% loan. Then I figure out the rehab and work on the house so that in the first year the house will give me a 10% increase in value through "forced appreciation and sweat equity". I also want to clear at least $200 per door of cashflow that I will escrow and reinvest into the property. I am looking to buy and hold.And as the years go buy and the debt is being paid down I hope to have increasing appreciation of the property. Am I thinking on the right path? 

To answer your question, yes you are thinking on the right path. Word of caution: appreciation is great and it seems you are thinking about it correctly. Don't ever buy for appreciation, that's how people lost their shirts (one of the reasons) in 2008. Buy for cash flow, pay down the loan and if it appreciates, that is just cherry on the cake. That being said I'm not sure why you would automatically offer 20% less. I don't mind offering low but at the same time, if you build a relationship with someone who brings you consistent deals, it's in your best interest to not low ball them every time. 

 Oh ok got it! Well when I read up on the book @Brandon Turner talks about when you make an offer throw in an offer with a 20% discount so that way when you are buying, you are "buying right" and buying wit equity into the property right away. Maybe I am reading this information wrong and he meant something else, but I do remember reading that you want to buy 80% of what the price is of the property. 

Originally posted by @Paul D. :
Originally posted by @Grant Rothenburger:
Originally posted by @Paul D.:
Originally posted by @Grant Rothenburger:

@Paul D. 

What exactly do you mean "also correct me if I am wrong going about analyzing a down payment"? 

 Hey Grant, yeah I am sorry for leaving that information down. I typed this up as I was leaving for work ad totally skipped the rest off what I was going to write.

Also when I analyze a deal I was thinking when I look at the asking price. The asking Price thats posted on the property I was thinking that I am offering a price that is 20% less than the asking price. "buying right"? I know numbers can vary depending on the market. The new price I would figure a way to come up with a conventional down payment and get a 80% loan. Then I figure out the rehab and work on the house so that in the first year the house will give me a 10% increase in value through "forced appreciation and sweat equity". I also want to clear at least $200 per door of cashflow that I will escrow and reinvest into the property. I am looking to buy and hold.And as the years go buy and the debt is being paid down I hope to have increasing appreciation of the property. Am I thinking on the right path? 

To answer your question, yes you are thinking on the right path. Word of caution: appreciation is great and it seems you are thinking about it correctly. Don't ever buy for appreciation, that's how people lost their shirts (one of the reasons) in 2008. Buy for cash flow, pay down the loan and if it appreciates, that is just cherry on the cake. That being said I'm not sure why you would automatically offer 20% less. I don't mind offering low but at the same time, if you build a relationship with someone who brings you consistent deals, it's in your best interest to not low ball them every time. 

 Oh ok got it! Well when I read up on the book @Brandon Turner talks about when you make an offer throw in an offer with a 20% discount so that way when you are buying, you are "buying right" and buying wit equity into the property right away. Maybe I am reading this information wrong and he meant something else, but I do remember reading that you want to buy 80% of what the price is of the property. 

If it's a deal at 100% of asking price, you don't have to get 20% off. Sometimes there will be a bidding war and someone will pay 110% of ask, I'm not saying they are always buying right, but they could have been. I haven't read any of his books, I'm assuming he was saying something along the lines of always offering lower. But, if someone showed you a great deal and they could not go lower but your numbers were great at their price, you buy it! 

"Buying right" is just buying property that fits your investment strategy and makes money, be it cash flow or a profitable flip, wholesale, whatever.

On the same note, if 80% of their asking price doesn't make the numbers work, don't buy it just because you got 20% off ask lol.

Originally posted by @Grant Rothenburger :
Originally posted by @Paul D.:
Originally posted by @Grant Rothenburger:
Originally posted by @Paul D.:
Originally posted by @Grant Rothenburger:

@Paul D. 

What exactly do you mean "also correct me if I am wrong going about analyzing a down payment"? 

 Hey Grant, yeah I am sorry for leaving that information down. I typed this up as I was leaving for work ad totally skipped the rest off what I was going to write.

Also when I analyze a deal I was thinking when I look at the asking price. The asking Price thats posted on the property I was thinking that I am offering a price that is 20% less than the asking price. "buying right"? I know numbers can vary depending on the market. The new price I would figure a way to come up with a conventional down payment and get a 80% loan. Then I figure out the rehab and work on the house so that in the first year the house will give me a 10% increase in value through "forced appreciation and sweat equity". I also want to clear at least $200 per door of cashflow that I will escrow and reinvest into the property. I am looking to buy and hold.And as the years go buy and the debt is being paid down I hope to have increasing appreciation of the property. Am I thinking on the right path? 

To answer your question, yes you are thinking on the right path. Word of caution: appreciation is great and it seems you are thinking about it correctly. Don't ever buy for appreciation, that's how people lost their shirts (one of the reasons) in 2008. Buy for cash flow, pay down the loan and if it appreciates, that is just cherry on the cake. That being said I'm not sure why you would automatically offer 20% less. I don't mind offering low but at the same time, if you build a relationship with someone who brings you consistent deals, it's in your best interest to not low ball them every time. 

 Oh ok got it! Well when I read up on the book @Brandon Turner talks about when you make an offer throw in an offer with a 20% discount so that way when you are buying, you are "buying right" and buying wit equity into the property right away. Maybe I am reading this information wrong and he meant something else, but I do remember reading that you want to buy 80% of what the price is of the property. 

If it's a deal at 100% of asking price, you don't have to get 20% off. Sometimes there will be a bidding war and someone will pay 110% of ask, I'm not saying they are always buying right, but they could have been. I haven't read any of his books, I'm assuming he was saying something along the lines of always offering lower. But, if someone showed you a great deal and they could not go lower but your numbers were great at their price, you buy it! 

"Buying right" is just buying property that fits your investment strategy and makes money, be it cash flow or a profitable flip, wholesale, whatever.

On the same note, if 80% of their asking price doesn't make the numbers work, don't buy it just because you got 20% off ask lol.

ah ok. Makes plenty of sense. So cashflow and CoCROI are basically the two main numbers I want to look at in a deal and make sure they are meeting my expected goals is what you are saying. Are there any guides you follow as of analyzing deals and any numbers you run that you try to stay close to or any numbers that give you red flags as of not to take the deal?

Originally posted by @Paul D. :
Originally posted by @Grant Rothenburger:
Originally posted by @Paul D.:
Originally posted by @Grant Rothenburger:
Originally posted by @Paul D.:
Originally posted by @Grant Rothenburger:

@Paul D. 

What exactly do you mean "also correct me if I am wrong going about analyzing a down payment"? 

 Hey Grant, yeah I am sorry for leaving that information down. I typed this up as I was leaving for work ad totally skipped the rest off what I was going to write.

Also when I analyze a deal I was thinking when I look at the asking price. The asking Price thats posted on the property I was thinking that I am offering a price that is 20% less than the asking price. "buying right"? I know numbers can vary depending on the market. The new price I would figure a way to come up with a conventional down payment and get a 80% loan. Then I figure out the rehab and work on the house so that in the first year the house will give me a 10% increase in value through "forced appreciation and sweat equity". I also want to clear at least $200 per door of cashflow that I will escrow and reinvest into the property. I am looking to buy and hold.And as the years go buy and the debt is being paid down I hope to have increasing appreciation of the property. Am I thinking on the right path? 

To answer your question, yes you are thinking on the right path. Word of caution: appreciation is great and it seems you are thinking about it correctly. Don't ever buy for appreciation, that's how people lost their shirts (one of the reasons) in 2008. Buy for cash flow, pay down the loan and if it appreciates, that is just cherry on the cake. That being said I'm not sure why you would automatically offer 20% less. I don't mind offering low but at the same time, if you build a relationship with someone who brings you consistent deals, it's in your best interest to not low ball them every time. 

 Oh ok got it! Well when I read up on the book @Brandon Turner talks about when you make an offer throw in an offer with a 20% discount so that way when you are buying, you are "buying right" and buying wit equity into the property right away. Maybe I am reading this information wrong and he meant something else, but I do remember reading that you want to buy 80% of what the price is of the property. 

If it's a deal at 100% of asking price, you don't have to get 20% off. Sometimes there will be a bidding war and someone will pay 110% of ask, I'm not saying they are always buying right, but they could have been. I haven't read any of his books, I'm assuming he was saying something along the lines of always offering lower. But, if someone showed you a great deal and they could not go lower but your numbers were great at their price, you buy it! 

"Buying right" is just buying property that fits your investment strategy and makes money, be it cash flow or a profitable flip, wholesale, whatever.

On the same note, if 80% of their asking price doesn't make the numbers work, don't buy it just because you got 20% off ask lol.

ah ok. Makes plenty of sense. So cashflow and CoCROI are basically the two main numbers I want to look at in a deal and make sure they are meeting my expected goals is what you are saying. Are there any guides you follow as of analyzing deals and any numbers you run that you try to stay close to or any numbers that give you red flags as of not to take the deal?

 I like the 1% rule, more if you can get it.