Hey all, I’m super excited to get into the real estate world and have been reading and listening to any and all information I can get my hands on! I want to start analyzing at least a few deals per week to get some practice and experience so I can get to a point where I can do them in my sleep and spot a good opportunity quickly.
Having said that, I want to be sure I am analyzing correctly! Perfect practice makes perfect, otherwise I will just be wasting my time. Is there a group or place where beginners can analyze deals together to offer suggestions or critique?
@Jake Yates there are calculators on BP you can use for free if Pro member or go into the files section and download a spreadsheet. A quick approximation is the 1% rule. Monthly rent divided by .01= Purchase price. $1200 monthly rent/.01=$120000 purchase price. You can make it cash flow with less than 1%. More down payment, lower taxes.
If you can find something close then you then use your calculator or spreadsheet. I break it down to hard costs and soft costs. Known and unknown. Taxes( some change with new purchase), insurance, mortgage, HOA, and utilities if landlord paid. Soft costs are unknown and are approximation of your monthly outgo. Maintenance, vacancy, and capex(capital expenditures-major items).
Most calculators or spreadsheets use a % of monthly rent. So what numbers should you use. I analyze with 8% vacancy( 1 turnover per year), 5% or $50 whichever is greater for maintenance and 10% or $100 whichever is greater. You have to account for the age of the major components of the capex. Let's say a roof costs $5000. Life span is 25 years. $5000/25 year life$ span/12 months in a year= $17 per month. Now assume the roof is 15 years old. Useful life is 10 years. $5000/10 years useful life/12 months in a year= $42 per month to put aside for capex. Most beginning investors do not budget enough for capex. Good luck
@Tim Herman thank you for the feedback, I really like that quick tip about the 1% rule!
Another big obstacle I have when trying to analyze these properties is the amount of repairs the place will need (hard to tell from pictures, and even if I saw it in person I wouldn’t know how much it would cost to fix the specific issues). Any suggestions on how to accurately estimate without consulting a contractor or handyman?
@Jake Yates It is hard to estimate. You have to call the painter and ask how much per sf they charge. Call a plumber and ask how much they charge to replace hot water heater. You will end up calling a lot of sub contractor and getting what they charge. Bathrooms and kitchens are especially hard as it depends on the finishes.
I too am looking for a group to analyze with. I just tried using the pro feature calculators and it looks like jumbo to me and I'm sure I'm doing it wrong.