Analyzing properties - NOTHING looks good.

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Analyzing properties - NOTHING looks good.

Kristi Wolfe
Real Estate Agent · Palatine, IL · Member since 2020 · 38 posts · 21 votes

I'm a newbie. I'm obsessed with learning about RE investing (for all of 3 weeks or so now), and have gotten my husband and brother involved. We're all very excited about moving forward (giving ourselves 1 year to learn/save/strategize/niche down before pulling the trigger). That said, I've been analyzing deals daily to help determine if we want to Buy/Rehab/Hold or use the BRRR strategy. According to my calculations, NONE of the 20 or so properties (SF and Multifamily) I've analyzed makes sense. I've found properties to analyze on wholesaler websites, foreclosure websites, Zillow and Realtor.com, I've looked in my area (NW Chicago suburbs), Chicago proper, Milwaukee, Beloit WI, SF and multi-family, etc...so I wonder if the "good" deals have already been picked over by the veteran investors before I'm even able to see them, or if my numbers are too conservative because I'm afraid over underestimating costs and overestimating cash flow/profit. Is this typical? Does it just take kissing a lot of frogs to find a prince? How do the veterans come up with ballpark numbers to determine if they want to go see a property in person? I can look a photos to see that the kitchen cabinets need to be replaced, or the floor needs to be refinished, or I need to purchase a refrigerator, but trying to figure out if there's a pipe leaking inside a wall or the furnace is 40 years old or the beams are sagging in the basement is something you need to see in person, so how do you not waste your time when you're at the point where you're ready to buy seeing countless properties that need more work than it makes sense to do from a numbers standpoint? Or do you just need to spend a lot of time to find a winner?

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
6y

Let me see if I can address all that you've asked here one by one:

1 - 20 properties?  That's all?

2 - Good deals come and go all the time.  Don't be impatient.  All that will do is lead to accepting a bad deal...just to get one.

3 - There's no such thing as estimating too conservative because you shouldn't be estimating...you should be using actual numbers.  There are no "ballpark numbers" for rehab.  Costs are what they are.

4 - The "waste of time" you want to avoid is looking at properties before you make an offer.  Establish what rehab you will be doing, know what those costs will be, apply them to a property, make your offer accordingly, and when you get your offer accepted...inspect the property to see if the property will actually "play nice" as far as the actual rehab needed will be.  If it doesn't, then withdraw your offer.

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    6y

    Let me see if I can address all that you've asked here one by one:

    1 - 20 properties?  That's all?

    2 - Good deals come and go all the time.  Don't be impatient.  All that will do is lead to accepting a bad deal...just to get one.

    3 - There's no such thing as estimating too conservative because you shouldn't be estimating...you should be using actual numbers.  There are no "ballpark numbers" for rehab.  Costs are what they are.

    4 - The "waste of time" you want to avoid is looking at properties before you make an offer.  Establish what rehab you will be doing, know what those costs will be, apply them to a property, make your offer accordingly, and when you get your offer accepted...inspect the property to see if the property will actually "play nice" as far as the actual rehab needed will be.  If it doesn't, then withdraw your offer.

    4Reply
  • Kristi Wolfe
    OP
    Real Estate Agent · Palatine, IL · Member since 2020 · 38 posts · 21 votes
    6y

    @Joe Villeneuve- how can I use actual numbers when I haven’t seen the property?  Shouldn’t I be doing preliminary analyses at home looking at potential deals, then if the deal looks good on paper, then go out to look at it?  Seems like a stupid question but am I going to physically be looking at 1-2 properties per day to find a good deal? 

    1Reply
  • Marcus Auerbach
    Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
    6y

    It certainly takes time and efford, especially today in 2020. We are in a super fast market and you need to know what you want and be quick. It's a little like catching fish with bare hands.

    How can you overcome these issues? Two things help: specialization and patience. You need to know what you are looking for, specialize in a property type and neighborhood. Develop your finanzila model. "Dry run" your numbers first and then find the real estate that matches your numbers. It's an incremental process as your first iterations of your financial model will be outside of market reality. This is the only way to develop the speed and confidence necessary to get deal under contract.

    Prices have gone up; 8% in the last 12 montsh alone (single family median sales price greater Milwaukee market per MLS data), however most of my chrystal balls seem to say that RE will never be as cheap as 2020.

    3Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    6y
    Originally posted by @Kristi Wolfe:

    @Joe Villeneuve- how can I use actual numbers when I haven’t seen the property?  Shouldn’t I be doing preliminary analyses at home looking at potential deals, then if the deal looks good on paper, then go out to look at it?  Seems like a stupid question but am I going to physically be looking at 1-2 properties per day to find a good deal? 

     Rehab are pretty much set for the typical rehab you will be doing.  

    1 - Kitchens = There are only so many kitchen configurations.  The different costs come from finishes, and homeowners choices...neither of which should come into play here.  You should be installing the same kitchen over and over again, with subtle differences, 

    2 -Floors = Go to your local supplier, and price materials.  Use the same floor in all your properties.  Labor and materials are based on sq ft cost.  Assume all floors will be replaced.

    3 - Paint = See floors.  Same applies here, 

    4 - Door hardware = See floors and paint.  Same applies here.

    Establish the rehab you will be doing on all properties.  Don't buy properties that fall outside the range of what you will be doing.  The idea is to maintain control of your rehab costs, and the quickest way to lose control of your costs is to let the property dictate...not you.

    3Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    6y

    Let me add that the most successful REI are the ones that "make" deals...not just "look" for deals...and I don't mean rationalizing a bad deal into a good one.

    1Reply
  • Kristi Wolfe
    OP
    Real Estate Agent · Palatine, IL · Member since 2020 · 38 posts · 21 votes
    6y

    @Kurt Deutschmann

    0Reply
  • John Teachout
    Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
    6y

    Not finding deals is not your problem. We just went for about 1.5 years without buying anything. We had the funds and the desire to purchase but just couldn't find anything that would work for us. I look all the time. In December and January we purchased 2 houses and a duplex. What changed is that we expanded into a new area we had intentionally overlooked previously. We currently have an offer in on a property we haven't heard back on yet.

    Just keep looking and analyzing and looking and.... Some advice, be ready to buy when you find something. ie, have all your financial ducks in a row ahead of time, don't do that after you find a deal. They won't last long.

    3Reply
  • Manny Cirino
    Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes
    6y

    If nothing looks good then I would say you are on the right path to finding a good deal. The only thing I will recommend is to not assume all of the deferred maintenance on a property has to be address right-a-way. Not every property needs no be over improved not every tenant group has the standards of living you would assume they should have. Sometimes fresh paid and steamed carpets and refurbished appliances get the job done.

    3Reply
  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    6y

    @Kristi Wolfe

    When I started I spent the first year analyzing what other people did. I watched flippers buy properties, rehab them and sell them. I watched what they did, attended open houses/property tours, attended REIA meetings, meetups and other events. I was a giant sponge, but I learned. Then I started my BRRRR projects and some flips and everything went pretty good. It's a learning process. Everyone has there own way they learn. CPA's and Attorneys went to school to learn. This is your school. Pm me if I can help.

    3Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    6y
    Originally posted by @John Teachout:

    Not finding deals is not your problem. We just went for about 1.5 years without buying anything. We had the funds and the desire to purchase but just couldn't find anything that would work for us. I look all the time. In December and January we purchased 2 houses and a duplex. What changed is that we expanded into a new area we had intentionally overlooked previously. We currently have an offer in on a property we haven't heard back on yet.

    Just keep looking and analyzing and looking and.... Some advice, be ready to buy when you find something. ie, have all your financial ducks in a row ahead of time, don't do that after you find a deal. They won't last long.

    Excellent answer.  Even better solution.  You can't fit a round peg into a square hole unless you shave the peg.  If the market is the hole, and the peg is the deal, what you just shaved off is your profit.  This is why understanding market analysis is more important than just property analysis.

    2Reply
  • Account Closed
    Rental Property Investor · Twin Cities, MN · Member since 2019 · 122 posts · 150 votes
    6y

    @Kristi Wolfe

    Veterans "rough" estimate numbers based on the following items: experience, knowing a market, understanding average costs to rehab specific types of properties & the time factor of money - holding costs (quiet costs) etc.

    Unfortunately experience takes time, work and some ups and downs. If it was possible to go from step 1 to step 100 without the learning curve this would be an easy business.

    - it isn't. Roll up your sleeves and dive in.

    2Reply
  • Ryan Bissell
    Member since 2020 · 5 posts · 2 votes
    6y
    Originally posted by @Kristi Wolfe:

    Is this typical?  Does it just take kissing a lot of frogs to find a prince?  How do the veterans come up with ballpark numbers to determine if they want to go see a property in person?  I can look a photos to see that the kitchen cabinets need to be replaced, or the floor needs to be

    I'm new at this too, but one thing I've recently learned is: don't replace things that you don't have to. To use your example of kitchen cabinets: in your hypothetical photos, where you see they "need to be replaced", make sure they actually *need* to be replaced. If it's an older property, and the cabinets just look dated but otherwise are completely functional, then just paint them.

    Over-improving is the kiss of death to your ROI during the 'Rental' phase of your BRRRRR...R.

    2Reply
  • Brett Kash
    Flipper/Rehabber · Milwaukee, WI · Member since 2016 · 153 posts · 84 votes
    6y

    @Kristi Wolfe All properties work at the right price. As an investor, you are never going to be able to pay the same as a family looking for a home when looking at a single family for example. You need to find deals that only investors want and offer whatever works for you and your numbers. You’ll get a lot of no’s before you get a yes. I’m fairly new to investing in the past few years myself and am sure that the best deals are going to the seasoned investors with a track record of closing and a lot of relationships. I know I’ve had to be more aggressive on my offers to even get a foot in the door. TBH I’m sure I’ve overpaid for both my flips. That being said, I’ve gotten a ton of experience and developed more connections so the next one costs less. Overall, offer what you can offer to turn a profit, constantly refine your analysis, seek advice, and make offers!

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    6y
    Originally posted by @Brett Kash:

    @Kristi Wolfe All properties work at the right price. As an investor, you are never going to be able to pay the same as a family looking for a home when looking at a single family for example. You need to find deals that only investors want and offer whatever works for you and your numbers. You’ll get a lot of no’s before you get a yes. I’m fairly new to investing in the past few years myself and am sure that the best deals are going to the seasoned investors with a track record of closing and a lot of relationships. I know I’ve had to be more aggressive on my offers to even get a foot in the door. TBH I’m sure I’ve overpaid for both my flips. That being said, I’ve gotten a ton of experience and developed more connections so the next one costs less. Overall, offer what you can offer to turn a profit, constantly refine your analysis, seek advice, and make offers!

     Very good comment.  Let me add this.  The best deals are the ones nobody else can see but you, not the ones that everyone can see.  To see these "deals", you have to understand how to "use money", and not spend it.  You also need to understand what true cost is...not total cost.  There's a huge difference between the two.

    There are many strategies that are available to those that understand this.  Rei is applied math using dollar signs, not percentages.  Don't get hung up on percentages when analyzing RE.  Percentages lie.

    1Reply
  • Frank Chin
    Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    I started REI when the real estate market was super hot, in the early 80's and prices was going up every year for the last 20, in the NYC area, doubling from the 60's to the 70's, and again 70's to the 80's. My wife was a licensed agent, told me in these cases, she has a "100 house rule", you look at 100 houses, there''ll be a fluke. Thought she was crazy, but decided to give it a try.

    We started looking in early 1983, in January. We looked at 2 to 4 properties per weekend, by the fall, around 80 properties, found a fluke, a triplex selling for $150K whereas ARV ran over $200K. What happened? The seller was selling it as a FSBO for nearly two years, was a jerk, scared buyers away, and a realtor convinced him to let her handle. But the seller only believed his gut, didn't think prices jumped that much, insisted the price should still be around $150K. When the realtor drove me to the house, found the seller chatting with a buyer that she recognized outside the house. She was pissed. Long story, the buyer confessed that they were discussing cutting the realtor out of the deal, her commission. The realtor told them, I could sue you guys, but if the seller sign a P&S contract with the buyer I bought over yesterday, i.e. me, I'll overlook it. I bought the house through a realtor way below market. The broker was a tough German lady and I wouldn't mess with her.

    A year and a half later, started our hunt again, another fluke? It was at a time they outlawed the standard 6% realtors were charging, and commissions went to market rates. One realtor had the bright idea telling the seller, I'll get you $180K (any over is the commission). ARV for triplexes by them was around $250K. By mistake, they advertised the property for $180K in the papers because the secretary heard it wrong. They subsequently advertised the place for $250K for several months, and it didn't sell. Why? The sellers insist they be there during showings but they were never home. Several months later, the broker called, asked me if I want it for $185K. She explained that she had trouble showing it, and her exclusive will run out in two weeks, so she'll take $5K as a commission. I hastily arranged an inspection and found the property needs a new roof. Went to contract and offered $181K taking into consideration the roof. I was going to walk out, so the broker agreed to the deal with a $1K commission. Again, it took over 80 properties for this one. Her comment "a thousand is better than nothing".

    Bottom line, I spent most of two years, weekends looking at properties, 80 per year. In my estimation, paid $100K below market for both in a superbhot market. But if I told someone the story, you'll have to see 100 places before you get a fluke, no one would believe me. The way I see it, it's a weekend gig that pays me $100K in two years. You can't beat that.

    0Reply
  • Carl C.
    Investor · New York City, NY · Member since 2014 · 289 posts · 374 votes
    6y

    @Kristi Wolfe As you are hearing, it takes a lot of looking to find a good deal that makes real financial sense. We have very high standards for deals that we want to pursue. That means we don't get many of them. We went two years before finding our most recent deal last year. It was a painful time to feel like we were not making any progress but we are very happy with what we ended up with. Stick to your numbers and don't rush anything. 

    1Reply
  • Brett Kash
    Flipper/Rehabber · Milwaukee, WI · Member since 2016 · 153 posts · 84 votes
    6y

    @Joe Villeneuve Great comment. The best deals are truly the ones only you know about. That’s where your relationships are key in my opinion. Become someone who is trustworthy that can be relied upon and people will gravitate toward you. There are a lot of folks in this industry that don’t meet that criteria.

    0Reply
  • Mike B.
    Developer · Chicago, IL · Member since 2013 · 431 posts · 354 votes
    6y

    Great comments above, but in my opinion, you should hold off on analysis. Go to some meet ups and build your team first. Start vetting your construction. When you get it down to a couple of people/companies, find out what their price per sq ft is for cosmetic, medium and gut rehabs. Walk their current projects so you can see quality of work. Talk to their references and ask what their experience was like. Understand walking in that cheaper construction will typically come with headaches and it never ends up being cheaper. Be comfortable with the people you're working with.

    Shake hands with some agents, wholesalers, bird dogs etc... and ask to be put on their lists. It's very hard to find a deal on the mls, it's where most investors go to sell, not buy. RE agents will be happy to put you on the mls auto list, but that's not what you're looking for. Tell them you're interested in hearing about their pocket listings BEFORE they go on the mls.

    Ask people for lawyer referrals. Most lawyers can get a property closed, but I prefer lawyers that understand investments and are willing to discount title fees knowing that they will continue to get business from me. You may not get this accomplished on your first one, but the goal is to get there eventually.

    Speak to other investors to possibly form jv relationships where everyone is throwing some cash in. This way you aren't alone on your first property. You have someone experienced with skin in the game and an interest in making sure the investment performs. Separately, you can also find companies that will manage the investment and hold your hand through the process. Just make sure they can show you a history of wins. Not spreadsheets created by them, but HUDS/tax records that show the wins.

    Speak to an accountant that can help you form your llc the correct way. It only costs a few hundred dollars to open an llc in Illinois.

    When you have all those pieces lined up, you can start running numbers on properties to get a closer idea on actual costs. Until then, all of your analysis is nothing more than a guess.

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