What is the best method for begginning to filter all this data. My thougts were:
1) Calculate mortgage based on purchase price and down payment
2) Apply 50% rule
3) Determine "potential" cash flow
4) Physically check location
Then work from there (real expense numbers/any rehab/ etc).
Any other thoughts?
What criteria did you give him? Your list sounds pretty good. It may be easier to give that criteria to your agent first
I focus first on location in my market here in the Phoenix metro area.
Homes near nationally ranked schools acaemically seem to hold high values...they also attract high end shopping, nice parks, wholesome neighboorhoods, etc...
If you were to find a house in a desirable location that needs touching up or a small percentage of rehab, I would take it, make an offer.
Here in Arizona, some weeks back I threw out a home for wholesale (under contract) in Chandler and it was swooped up fast for more than I was asking for, and later a fight between investors and retail buyers by not getting an opportunity to purchase!
Yes 50% rule is good
Remember to walk away if the rehab is too much.
$0 to $200K in three different cities. I wasn't expecting that amount of listings in return. I am struggling a bit to determine what criteria to help narrow it down. I am starting with ridiculous asking prices for bad neighborhoods ( the ones on the morning, afternoon, and evening news seven days a week).
I am keeping an eye on rehab costs as well. Some of these are pretty cheap and beat up.
If you're just getting started, spend time reviewing all 111. It'll take you a while, but it will get you a good feel for everything happening in your 3 areas in your price range. If your realtor set you up on a "drip system," then going forward you will only receive listings for new properties coming on the market or price changes. It will probably only amount to a few properties every other day to look at.
The big dump when you first get your criteria set up with your agent is overwhelming, but it gives a great opportunity to study inventories and get a better grasp on your target market.
Good point. I am meeting with him this afternoon, so I'll confirm that is the case. Looking at all the listings has been a good crash course in the market differences of each city.
Good advice from @Scott S. here. You have to know what's going on in an area to know what's a good or a bad deal, and the only way to do that is compare, compare, compare. It's easy to make the mistake of looking at a property and saying "wow, that would go for 100k more in my town! it must be a good deal" and end up with an overpriced mistake. If I were you, I'd get on realtor.com and look at every darn listing in those three towns, not just the ones you've been sent. You'll develop a sense of the neighborhoods, what you can get at what price point, what retail ready vs rehab ready is going for, and what the best value play might be in that area. Don't rush this part, it's what is going to make your investment work. Good luck!
So much great information already provided, not much else to add. However, I will reiterate looking at ALL 111 listing is NOT a bad idea. You say you have 3 cities you're looking at, well in phoenix (one city) will have a plethora of zip codes to go along with it. By looking at each listing and potentially viewing some, you'll have a better understanding of where you want your market to be.
Again I agree with what everyone has said thus far. Start with broad strokes, that way you capture potential areas that may have originally been missed. Then slowly move towards a more narrow and defined search.
I will add that it may seem overwhelming at first, which it is. However, as you start thumbing through the listings provided you'll become more in tune with what you truly want in the end.
Thanks Scott and Derek
All points I'm taking onboard and running with it. I pretended to work at the office today, but really I was going through every listing. It was daunting and educational at the same time. My next pass will be to remove listings based on a 50-60% rule. These are mostly duplexes.
It may also be a good idea to visit these listings to see what types of neighborhoods you prefer. Driving the speed bumps can definitely give you a different perspective on things!
That's my weekend plan!!!
Are you looking to purchase one property, or to build a portfolio? If building a portfolio, what is that going to look like? I am a big fan of determining a farm area and getting good at that market. Know what the going rents are, what is good condition vs bad condition for that neighborhood, what properties might sell for once upgraded to various levels.
You can use this plethora of listings to help you determine this area. Also, that price listed is just asking price.
Ask your realtor for a similar list, but of sales. Study the sales patterns in your area. Look at how big of a discrepancy between list price and actual sale price there is. These trends vary from neighborhood to neighborhood.
Purchasing my first one. Goal is to purchase one property each year for the next ten years. SFR or multifamily.
@Bryan N. got a dart board?? (kidding!)
Evaluating single family homes is pretty straightforward but you need more than just the listing with 111 properties on it. You need the potential rent for each of those properties and that will likely narrow the list and make the broker think twice about sending you a property because he/she will need to tell you the potential rent for each one they send. Otherwise, the property listing is worthless since you don't know how it profits.
Here's what I would do:
1. Tell your agent you want X percent cash flow when looking at purchase price and monthly rent. When I was buying single family homes mine was at least 1.4% (the higher the better)
2. Tell your agent to ONLY send you properties that meet that criteria (therefore he/she will need to run the potential rent #s before sending to you) - this will cut your list down from 111 to 11 (is my guess)
3. Then take those 11 (or so) properties and see if you a) like the area and b) how much it costs to be move-in ready
4. Find the 2 - 3 properties (again, a guess) from that list that meet your goal based on cash-on-cash return and good area and then make an offer.
It's funny you mentioned that. I basically ended up doing that (50% rule on duplexes) and the list narrowed down to 25. I'm half way through the boots on the ground process (drive by of all 25 right now) and have found maybe 3 so far worth looking into. I'll tighten my criteria to my realtor in the future to reduce the numbers more. This has been a good lesson in knowing neighborhoods so far today.
You might want to concentrate on certain neighborhoods as 3 cities in that area is pretty vast. I am guessing Va Beach, Cheasapeake, and Norfolk?
Yeah. I'm not going past the tunnels. I am focusing down to certain areas. Just getting a feel for what is going on where. I'm pretty familiar with the beach and Chesapeake. I spent most of today in norfolk as I am unfamiliar with most of that area.
I would make a smaller focus whether that is distance from you, types of tenants you are after, class of properties, etc. There are a few good spots in Norfolk for people w/o kids or using private schools.
Thanks for the heads up and info. I learned a lot about various areas of Norfolk today. You are right, there seems to be a few areas. Many are not up my alley.
Hey, there is a music festival at the beach near 24th- maybe we could meet up and discuss- shoot me a PM.
@Bryan N. strong work. A day and a half ago you were a bit overwhelmed by 111 listings. A day and a half later you've not only gone through each of them, but driven a lot of them as well. That's impressive. I have no doubt you'll be succesful if you keep up all of the research, diligence, and follow-through.
Also, not sure what the ststus of REOs and auctions is in your area, but in addition to the MLS I would check out the following:
realtor.com (sometimes finds things my agents MLS doesn't)
zillow.com (also sometimes finds things my realtors MLS doesn't)
and of course craigslist.org
I use a program a browser plug-in called "morning coffee" to launch each of these sites results page for my target area in a new window, every day, to see if anything is new. It takes me 30 minutes per day or so.
@Bryan N. you might want to start with what school systems you would like to focus on. i work the columbus area but i won't touch columbus city public unless it is in the trendy downtown areas. but start with school systems that will take away a lot of what you don't want.
@John D. thanks for the encouragement. I do the daily check on some of those sites now, but I will add the rest to my list. It's my morning coffee as well.
@Jeremy Davis I learned that one today. I cruised by a property and on the way I saw a high school that has been in the news more than once. I knew right away to keep on going.
One more tip, assuming you're doing all of your analysis in a spreadsheet, factor in days on market somehow.
Properties that have been sitting for a long time are often more negotiable, so I will factor that into my analysis, or maybe use that as a way to form a different list of properties you intend to me aggressive offers well below asking on.
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