"Analyzing Deals" What do you mean?

Question

Hello Again BP community,

This may sound like a foolish question but I hear on the podcasts and what not all the time, "analyze 2, 5, 10 deals a day if you want to get good at recognizing a deal." Are there deals to be analyzed on BP? Or do I need some sort of MLS software? Or can I simply look on Zillow and places like that to find deals to analyze.

Also, how does one go about a deal? Say I'm interested in flipping houses. Would I guesstimate the ARV and see if the home sells for 70% ARV and then track what it sells for in the end?

I would be so grateful if someone could point me in the right direction on this subject.

Thanks you for your help!

Howell

Sheree Fullwood · Answer

Hi @Howell Conant So a good starting point to get the ARV is to run some comps in the area of similar properties that have sold/listed in the last 3-6 months depending on how fast your market moves.

For example: If you're looking at a ranch style 3bd/2.5ba 1500 sqft built in 1950 listed for 160K that needs reno - find properties that are the same style of house, size (+/- sqft), bedrooms, baths etc., etc. that on on the market. Say they are selling for 210K, so based based on the 70% ARV you need to be all in (reno & purchase) 147K. You need to to figure out if that property is doable based on the scope of work required.

BP does have some really cool Deal Analyzing programs that you can play with to better help you find the best number.

Let me know if that helps a little?

Howell Conant · Answer

Thank you @Bill Devola!

I am going to try to create an Excel spreadsheet that will help me calculate all of this. I have a model that can help me evaluate equities using 5 year historical and 5 year projections so I have a base to work with.

I know there is a calculator on this website that I can use to work with but it would be nice to have all the properties in one spreadsheet.

Thank you for your advice!

Howell Conant

Howell Conant · Answer

Awesome, thank you @Brandon Turner. I just signed up!

See you then,

Howell Conant

Bill Devola · Answer

Good question!  MLS isnt really software its...thats neither here nor there. You dont need it. Its helpful, but not necessary.

As to your other questions above, you are on the right track.  Except for what you said about tracking what the home actually sells for.  Thats even higher level analysis that isnt analyzing the deal, its analyzing your market.  As an aside, its really really useful to do.

But what youre referring to is evaluating deals.  If youre a flipper (sounds like it) its about looking at properties, seeing the work they would need (roughly), figuring out what they would sell for fixed up, and seeing what your profit would be if you offered:

100% of list price

90% of list price

80% of list price

In our market inventory's gotten tighter.  I wont get many deals offering 80% of list price.  90% will make it work.  If you can offer 100% of LP and find deals to make money, youre in real good shape (market wise).

The 70% MAO is useful, but please please understand its back of the envelope stuff.  It doesn't work if the ARV is $110K.  You need more like 62.5%.  It doesn't work if the ARV is $700K.  You can go more like 73.5% there.

Calculate the deal by hand: closing costs on buy AND sell side.  How much interest do you pay on your money?  Whats the BR insurance in your state?  How long will it take you to fix it up (if you've never done a renovation give yourself 9-12 mos.  Be conservative.  If you're you have 15 different close friends who are all contractors, say 3 mos.)  What are the property taxes?  Whats the real estate commission you'll pay.  I mean list everything.

After you've done the above (calculating all the little costs by hand, so to speak) 4 or 5 times, what you'll be doing on future deals is just ARVs and repairs.  ARVs and repairs.  Over and over.  And it will make you sharp. ARVs teach you about the market.  Repairs give you perspective on the scope of the project.

Then, you're ready for the higher level market analysis you eluded to.  See if the deals and where the houses trade work for you.

One last thing, you left off locating a realtor.  Thats a helpful way to crunch deals.  You can look online, but realtors open up access you cant get online both physically and information wise.

Brandon Turner · Answer

Hey @Howell Conant here's the link to the upcoming webinar: https://www.biggerpockets.com/webinar?main_track_o...

Thanks for the mention @Travis Juntti

Travis Juntti · Answer

@Howell Conant

To answer your first questions, there are deals on BP in the Marketplace Section.  For the MLS, do you have a Realtor/Agent that you work with?  If not I would suggest interviewing a few and find one that you can work with, they will be able to help with the MLS access.  You can also analyze deals on Zillow, this is good practice that you can do today to get yourself familiar with analyzing deals.

Getting an ARV for a home is best done through a Realtor/Agent, especially when you're new to REI.

I would strongly suggest attending today's webinar hosted by @Brandon Turner.  I don't know how to post the link, but you'll see "Register for Free" all over the site for the webinars.  You will learn a lot on the questions you had just asked.

Best of luck!

Travis