How to evaluate a good deal

[Kyle Holsey]

Hi is there anywhere on bigger pockets that will teach you how to  evaluate a good deal? if not does anyone know good books or resources that could teach me this? thanks in advance

[Adam Johnson]

@Kyle Holsey - I don't know of any easy source to tell you how to determine whether a deal is good or not.  With that said, I use a few general perspectives to determine if a deal is worth pursuing.  I am a buy/hold investor.

1. 1. Is the property capable of earning enough income to pay all expenses and debt service while also leaving me positive cash flow?
2. 2. Can I own/acquire the property for less than what it is worth if I had to sell it?  For example, I buy the property for 50K, spend 20K to fix it, and it is worth more than that when I am done.  Note that any property is worth ONLY what a buyer will actually pay for it, so don't talk yourself into an inflated value.
3. 3. How can I get into the deal with as little of my own money as possible?

I use all 3 of these factors when deciding whether to buy or not.  The first 2 are critical, in my opinion, if you want to buy/hold OR flip.  The reason I say that is it leaves you options.  For example, let's say you buy a property planning on holding it, but something changes tomorrow (or next year) and you have to sell.  You never want to be upside down on a property.

Alternatively, if your intent is to buy/sell the property over a short term (flip), if the property doesn't sell, you want to be able to carry it as an "accidental landlord" for a period of time while you figure out what to do next.  If the property works as a rental, even though you never plan to do that, then you have a backup option.

When I do this, many deals that at first appear to be good end up in the garbage can.  I like to always have 2 working exit strategies at a minimum.  This does make it tougher to find deals that will work, but it also makes the deals I DO make much safer.