How to get better at analysis

9 Replies | Seattle, Washington

I'm very new to REI and I'm having trouble understanding how to think about the numbers and evaluate a property. I have it on my "business plan" to run numbers for 50 potential properties, but that won't help me if I can't determine if I'm doing it correctly. What is the best way to get your numbers "checked"?

I have read the advice of joining a local REIA in my area (Seattle). There are a few. Does anyone have recommendations or thoughts on which of them are the most active.

Thanks in advance!

Originally posted by @Marc Luzuriaga :

Have you run the numbers in the BP calculator yet? The tools are pretty handy, post up what you have and I'm sure you'll have people chiming in. 

Yes, but it requires you to know/guess your rehab costs and ARV, which again, I have zero feel for. They also have a lot of other numbers that I don't have any idea how to find. And I don't think the forum would appreciate me uploading 50 trial analyses. Even I would be annoyed by me...

Hi Elaine,

It can definitely be a daunting task analyzing properties, especially if you're new to the process. Having a feel for the numbers is something many investors rely on and usually comes from years of experience. When practicing, don't worry so much about becoming accurate with the numbers, be more concerned with learning the process and calculations. The ARV will perhaps be the easiest and closest thing to which you'll have data for. Look at what's selling around the property you're analyzing. Find similar properties (what we call comps or comparables) based on square footage, lot size, bedrooms, bathrooms, age, etc. and use those as your ARV.

Networking within a group is great, but ultimately the numbers you're analyzing will come from experience and will be situational (every deal is different).  Perhaps reaching out to an investor who's "been there, done that," or looking at other deals people post in the forums would be of some help as well.  You'll be able to see "averages" for some of the costs such closing costs, etc.

I know you're new to the process, but when the time comes, an investor friendly real estate agent will also provide services in helping identify properties that'll work for your strategy, risk tolerance and level of experience.

I'm happy to help in any way I can with questions.  Feel free to reach out.

Originally posted by @Elliott Elkhoury :

@Elaine C. are you committed to being a rehabber? Why not buy stable property that is already in serviceable condition? 

Hi Elliott! It's difficult to find a stable property here that I can rent out for positive cash flow if buying at market rates. I've been given the advice that the best approach in the Seattle market would be to rehab/add value to a property, but again, I'm super new so trying to learn the analysis aspect first!

Which numbers are you having trouble finding? For ARV, you can click the "Sold" feature on Zillow to see what sold in that area and for how much (Try to stay within 1/2 mile and within 6 months sale date) For estimated rents, check rentometer. Until you become an expert at rehab costs, one investor told me a "quick and dirty" way is estimate $20-45 per square foot depending on condition (20 - light cosmetic stuff, some flooring etc.. 45 - trashed - full gut.) It's not exact by any means buy should put you in the ball park. For other numbers, local realtors or property managers should have that information.

Hi all - great input. I've developed a spread sheet to help analyze a property, very willing to share. I've made a number of assumptions I would like to run by you. One thing I'm finding with my assumptions is that for the numbers to be what I define as good, the price I need the property at is significantly below the asking price. Let me give you a for real example of a duplex I'm looking at:
Asking price: $176K
Income: $25K
For expenses I made the following assumptions:
10% vacancy, $50/unit/month repair budget, CapX budget of 2% of the purchase price, in this case I'm thinking of offering $140K, taxes $5K and insurance $1.5K. All utilities, lawncare, snow removal paid by renter.
For a rehab budget I figured $8K, unit looks in good shape but it needs paint, plus I figured $4.5K for closing cost.
My total out of cash will be $41K, I desire a 10% ROI on cash(do I put this down as an expense against cash flow?, which I have not yet).
Based on these numbers the cash flow would be +$147/month, which is only 4% cash ROI.
If I want to pay myself back the ROI on cash I would now be negative cash flow.
Thanks for any input.

@Elaine C. I would definitely agree that it's going to be hard to find something that cash flows.. but even a value add property wouldn't cash flow much. In fact, it would be far better to just sell your value add property and treat it like a flip in that market right now! That would be very profitable in comparison. 

@Elaine C.

I used to have a brokerage firm. I think a good way to look at these things that you have no idea or experience with is to sit back and look at it differently. I mean look at rehab cost. Though you don’t know if it’s high, low or just right. You could take a contractor to the house. Set up 3 appointments and get 3 quotes. See how different the prices are. Do it for network purposes and learning purposes. Then instead of looking at just numbers, sit back and say would I do this for x price if I owned this house? Would I have 😳 eyes at that price or would I have 😁 eyes at that price. Rehabbing your going to get crazy contractors and maybe find a good one here or there. I had an investor that didn’t have an idea on remodeling. She showed up at every house and had her builder with her. He walked thru and estimated high on everything. Gauging her but never the less, she made her offer based on his crazy offer to her. She won one here and there.