Investor · UT · Member since 2019 · 12 posts · 14 votes
I’m spending quite a bit of time every day analyzing deals. It’s been a lot of fun, and great practice for me.
Some days I have a hard time deciding which deals to spend time analyzing, versus just skipping over it and looking for a better “first glance” deal.
When you’re analyzing deals, which is a better approach:
1) If a deal seems bad at first, analyze it to see if it can be proved otherwise (maybe the fact that it looks bad means other investors have skipped over it).
or
2) If a deal seems good at first, analyze it to see if it can be proved otherwise (maybe it’s been made to look better than it really is and you’ll end up with a lot of competition).
I’d love some input! What has helped you pick which deals to spend time analyzing?
Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes
6y
That's a tough one. I'm not sure which I would pick over the other to save time, but can share what goes on in my mind when I come across your two scenarios.
I do like exploring the deals that seem "good" at first glance, just to see if it seems legitimate or it was just neatly packaged into a pretty listing. This sometimes will take more due diligence and research though. I try to break this deal down, find the negatives, and try to write it off as a bad deal...unless it passes and then you can continue further in the research process.
If it is a "bad" deal at first glance, it sometimes makes me even more excited because now I have leverage to negotiate more and so I go to find ways that this could turn out to be a better deal than how it appears. Again, this will take some more research too, but there are just poorly presented opportunities that with some extra digging around you can find some information that is valuable to your personal investment criteria. Like you said, I think some investors do tend to walk away from some of these (I'm sure I have as well), but a couple of my best pickups have been taking a second and third look at what initially had seemed to be a "bad" deal, finding little pieces that added value in my book, or finding a way to negotiate to a level that makes the deal "good".
Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes
6y
That's a tough one. I'm not sure which I would pick over the other to save time, but can share what goes on in my mind when I come across your two scenarios.
I do like exploring the deals that seem "good" at first glance, just to see if it seems legitimate or it was just neatly packaged into a pretty listing. This sometimes will take more due diligence and research though. I try to break this deal down, find the negatives, and try to write it off as a bad deal...unless it passes and then you can continue further in the research process.
If it is a "bad" deal at first glance, it sometimes makes me even more excited because now I have leverage to negotiate more and so I go to find ways that this could turn out to be a better deal than how it appears. Again, this will take some more research too, but there are just poorly presented opportunities that with some extra digging around you can find some information that is valuable to your personal investment criteria. Like you said, I think some investors do tend to walk away from some of these (I'm sure I have as well), but a couple of my best pickups have been taking a second and third look at what initially had seemed to be a "bad" deal, finding little pieces that added value in my book, or finding a way to negotiate to a level that makes the deal "good".
Real Estate Broker · Hyde Park Tampa, FL · Member since 2019 · 2k+ posts · 3k+ votes
6y
Good versus bad? How about respecting your time more than analyzing for the sake of surprising yourself! What's your investment criteria? For my investors, if it's not insurable - deal breaker. If you can't get insurance, you can't get financing - so it's a whole lot of why bother. So if you eliminate all of those properties that have old roofs, mold, settlement issues, outstanding code violations, and more of the why step in that - I'll call those "bad deals," you can get on with analyzing deals that are worth your time and possibly worth doing.
As entrepreneurs/business people, we can always make more money - but time is finite and yes, time is money. I find that those who analyze to analyze rarely ever act...they get stuck in analysis paralysis. When you respect your time, a lot of clarity is gained.
Unless you plan on buying with cash and doing a flip/rehab with even more cash, start your analysis on properties that meet your investment criteria (location, price, use) and go from there.
Why go in with a preconceived idea? You should know how much properties rent for (eg single family house, 3 bed, 2 bath) and from there know how much mortgage it will cover...meaning you then know what price range to look at. Making up numbers, if a 3 bed/2 bath rents for $1800, you know taxes run about $2400 per year ($200 a month), figure out insurance and utilities. See what is left (pretend $1500), then figure out how much to put aside for vacancies and repairs. The number you are left with (pretend $1300) is the MAX mortgage you want to get.
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
6y
@Kellon Parkinson how about zeroing in on what you feel are viable locations for you and analyzing everything? Better to have deep knowledge of an area than quick glances at tons of random properties.
When you first start the most difficult aspect is narrowing down your investment area. Select a neighborhood or two your interested in. Become an expert in those areas so when something comes before you, the analysis is quick because you know your numbers are. You know the value of properties and what your market rent is. Quick analysis.
If you spread yourself to wide every analysis will require you to figure out that market. It’s ok if your trying to learn but will burn up your time. I understand when your in the learning phase you just want to make sure you are analyzing properly. When I was able to limit my investment areas it helped me learn at a faster rate.
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
6y
Nice work on analysis. Soon, you will be able to determine your target price range in five minutes because you will know the market and all the key assumptions. Then you make offers on all or most of them...based on a target price that works for you. Driving the volume of opportunities and offers in your funnel IS real estate investing.
Thanks for that well-thought response. You nailed my question right on the head. I listened to the BP episode with Nathan Tabor and he says you make your money during the due diligence period, giving you more negotiation room. That might be part of the reason I was wondering if I should look deeper into the deals that other people have skipped over.
That makes perfect sense, and is not a method of approaching things that I had considered. I love the idea of working the numbers backward like that. Thank you!