How to analyze a real estate deal

Question

So from what I understand so far, the three things I need to bring to the bank are the deal, the debt, and the equity. I have the deal: It's a 4 bedroom, 3 bathroom single family home in Columbia, SC currently for sale for $220,000. How do I figure out if this is a good opportunity? I want to buy at a low price, in a good location, and rent out the property so that it cash flows. The median rent in 29229 is $2200/mo. What do I have to do to figure out the math on this?

Does that mean if I can find 11 people who will put down $20,000 each, we could pay cash for the deal? They would turn that $20000 investment into $200 monthly rental income, and that would add up to $72,000 over the next 30 years, off of an initial $20,000 investment.

Randall Weatherall · Answer

That's a lot of people for a single house; try to buy it yourself and get all the profits.  Don't fear a mortgage that will stay more or less the same over 30 years.  Remember, money in 30 years isn't going to be worth anywhere near what it is now but rents will continue to go up.  11 people to stay connected and argue about repairs/not pay anything until they eventually become a cloud on the title when someone tries to sell without alerting the others.  Don't do it.

Tim Herman · Answer

@Gabriel Britt First thing you should do is educate yourself. On the education page under guides you can further your education. I would start with Brandon Turners https://www.biggerpockets.com/... The income you quoted would be gross income not net. You would have to take out taxes, insurance, repairs, vacancy, and capex. It will run around 50% of gross. After you educate yourself on the basics you can play around with the BP calculator. I think you get 5 free uses and it will determine if this is a good deal. There are videos on how to use the calculator.  11 people will have 11 ideas on how the house should be run. Will be like herding cats.

Brian Blosser · Answer

@Gabriel Britt Have you considered doing a house hack on a multifamily property? Could you roll your current equity plus what you have for DP into a 4-plex and get rent on 3 units? I'm seeing a few on the market in Columbia this could work for.

Jose Solis · Answer

Hey Gabriel,

I would check out the bigger pockets calculator. They have some nice tools that do help you analyze a deal and you can determine if it is a good deal for you. But in terms of the rent $2200 a month not all is profit even if you pay cash. You do have to consider taxes, insurance, vacancies, Cap Ex, and repairs. 11 people does sounds like alot maybe finding 1 or 2 that can bring the downpayment, you find the deal that is undervalued and BRRRR it and pay back your investors. Just an idea but happy investing!

Gabriel Britt · Answer

Wow that's a great idea Brian, I would need to overcome a few challenges to make that work, as I have a family of four. Convincing them would take some time. I'd need to have a serious opportunity with numbers that work to make it worthwhile.Love this strategy though. Using equity for a down payment is exactly what I have been considering.

Gabriel Britt · Answer

Love the community support and all of the helpful advice. Randall, Tim, thanks for the suggestions. I'm definitely reconsidering doing the 11 person deal. Thanks for bringing the additional expenses to my attention as well. It will be easier to determine the taxes and insurance than the CapEx and vacancy, which are a bit more arbitrary.  Sergey, I do have the prequalification, but the banks were asking for 20% down. Yikes. Still trying to figure out how to make this work anyway. I will find a partner who is experienced and looking for a deal.Jose, that's the second bigger pockets calculator recommendation. I will definitely check it out. I have to find what numbers to enter in for taxes, insurance, CapEx, repairs and vacancy.

Gabriel Britt · Answer

I don't mind working with other investors, maybe you're right 11 is alot of people for one single family house. You've got me imagining how much arguing would occur and how long it would take to make even a simple repair lol. I have a mortgage on the house I own, and with my financial situation, I don't have the capital to put down the 20% down that banks are asking to get a loan for an investment property. That would be over $44,000 for a $220,000 house. I could probably come up with half of that. By the time I save another $20k at my current salary, houses will probably cost $300,000.

I'm basically trying to think of creative ways to finance a deal.

Also, my other goal is to get educated on how to analyze whether this is even a good deal to begin with.

Sergey A. Petrov · Answer

Go to a lender and get yourself prequalified first. You’ll have an idea of what you can afford on your own and when you’ll need a partner or two at the most. 11 sounds like a perfect disaster recipe!

How to analyze a real estate deal

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