How do you figure out what's a good deal in your market?

7 Replies

I am finally in the position to be able to purchase my first property, I am pre-approved, have the capital to spend, and am running the numbers for every property on the MLS in a 40-mile radius. The problem is after running through 80+ properties I have realized two things.

#1 The Bigger Pockets deal analyzer video numbers don't work out for my immediate area, having 5% for a vacancy, 5% for repairs, 10% for capital, and 10% for property management leaves you with 0 properties that cashflow in my area. 

#2 I remember that all of the properties I have looked in the past 6 months have not cashed flowed but I am not picking up on what is the norm.

To figure out what a good deal looks like in my market, I have turned to the spreadsheets and I have started to record all the numbers for each property that I analyze and the data is now telling me what the market looks like.

For example:
 The 1% rule doesn't work for the purchase price -> rent income I now know anything that is higher than 0.68% is above average in my area.

 The 50% rule for expenses doesn't work but around 70% does.

This has also given me a good range of expected expenses based and allowed me to see a large range for how much each unit can rent given for in my area.  The more numbers I collect the better the picture of the market I get.

So BiggerPockets what rules of thumb are you creating for your area?

@Wayne Snyder I'm guessing you are underwriting at the asking price - correct? If so, how about picking out the properties you like the best and start sending Letters of Intent (LOI) at purchase price and terms that do make the deals work for you? You won't know if you can get them under asking price unless you try!

You are correct I am looking at the initial asking price and I have been putting in offers at lower prices with my realtor which if I understand you correctly you are saying just send them a written agreement not using a realtor.  Regardless, I am getting push back from sellers of not wanting to negotiate, so this has to lead me to think what am I missing and for me, I think I am missing the context of what does my market look like and what realistically can sellers get for their properties in my area.

Hello Wayne, Most people dont understand negotiation and because of their lack of ability nothing get accomplished. 

I have heard a lot of investors say things like I can pay you "X" dollars and most when they say that will be asked to leave. 

I have always like the negotiating approach of listening, determining motivation, explaining justification and ultimately agreeing to the price set by the seller as the purchase price. 

The key here is having a conversation built utilizing the following.

  • Embedded Commands
  • positive and negative reinforcements
  • pace
  • mimicking
  • story telling 
  • pause techniques 

When used correctly youll find that the art of negotiation is to give your prospect an opinion which they in turn relay back so you can agree to it.

Certainly negotiation is full of takeaways, giveaways, holds and most importantly respect. 

Happy House Hunting

 Hi Wayne,

You don't want to use a "rule of thumb" calculator to underwrite MF deals. You want to base the rents on the condition of the unit (how they will be once you take over) and rental comps. You want to base expenses on the current expenses and how you will operating the property (which a property management company can help you with).

Hey Wayne, it sounds like you're on the right track. A couple of key factors I like to know at all times are the number of available units in my target market, the average price per unit, the last 12 month absorption rate, average vacancy/occupancy rates, and average rents for 1-3 bedrooms. You can pick up that information as you look at deals like you have been, but these are things your agent should be able to tell you. Is the guy you are working with sending you deals that make sense or just having you look through what's on the market?