Analyzing Deals....Are they that hard to find?

Question

I am starting to analyze deals in an attempt to look for an investment property. Specifically I am looking for a duplex/quadplex property and I am finding my margins to be very tight. Perhaps I am looking in the wrong area with low rents or either the property price is too high in order to make the numbers work. This leads me to think that in order for this to work I need to find a property in a pretty bad condition for a pretty sweet deal. Is it that rare to find a multifamily that is in decent condition and decently priced to turn a profit? Perhaps, I need to be looking at properties that are in need of a rehab.

I am looking to use a conventional 20-30% down payment 30 year fixed rate loan.

Michael Goldsmith · Answer

I don't think deals are hard to find.  Anything can be a deal.  They are, however, hard to obtain.  That's the tricky part.  I'll elaborate.  Every property has it's number that could make it a "good deal."  More often than not, however, *that* number won't be what they're asking for the property.  Usually, asking price is quite a bit higher than what makes the numbers work.  Negotiate.  Worst case scenario, they don't budge and tell you to go to hell.  Best case scenario, they cave because they want the property gone, and give you everything you want.  If you see potential in a place work the numbers until they make sense, then offer that.

Joe Villeneuve · Answer

I find that the answer to most questions are found in the question...and hidden...in plain sight.

Same here.  You answered it already.  Find a different market.

Ritch Bonisa · Answer

The more rehab needed, the harder it can be to traditionally finance.  The more distressed the property typically requires more cash.

It's important to be realistic with expectations.  The deep discounts and great deals we saw 3 plus years ago, are much harder to find today.  There are definitely some still out there.  There is also more competition in the purchasing of investment property, which has driven up price points on distressed properties in many markets.

If you turn to doing more rehab and the purchase of distressed properties - make sure you understand all of your costs. Understanding costs, especially realistic rehab costs BEFORE you purchase is vital.  Knowing those costs is where most investors make mistakes.  The other area is understanding ARV.  Sellers will tell you anything in terms of rehab costs and ARV projections.  Remember their goal is to sell, they typically don't care what happens after sale. After you buy - it's your problem.

You need to be able to get good info in terms of comps and rents.  There is probably a REIA in your area, maybe you can make some connections that way and begin to build relationships that will help you find the answers to some of these questions.

Sam Hickey · Answer

@Nicholas Krogmann

Couple thoughts for you.

1.  Every market is different...  my “numbers” don’t line up with BP calculators and I still turn profits that I am happy with...   if you are interested in staying in your market, you may have to adjust you “target” on returns and see if you can make it work.  As an example, I average 15-18k on my flips.  Nowhere near what seems to be the 30k average I hear..   I also cannot use the 70% rule or I wouldn’t have purchase one flip yet.  I had to start analyzing with real number instead of percentages and asking myself. Am I ok with 15k instead of 27k.  Etc...

I’m in the Midwest and though houses can be quite cheap the margins can be smaller.

2. Networking......  tell everyone you can what you are looking for...  multiple agents/brokers friends, family etc...   I have found a handful of deals that started with a phone call.....   ( hey, you still buying houses?  Etc ).

Good luck.

Dean Letfus · Answer

Also when you say "I only want a blue car", and you ignore the hundreds of red and yellow cars that are available, you make life very hard for yourself.

Ryan Dossey · Answer

This to me looks like an issue of marketing. If you're looking for rental ready / Financeable properties on the market they're not really going to "work" for most investors operating on formulas. A solid amount of the listed properties are owned by people who don't understand how to value/price small MF and brokers who aren't really running cash flow/ p&l analysis. My recommendation would be to go direct to the seller in your market and use something like Lima One to be able to purchase a property needing some work. People sell at a discount when there is financial motivation, lifestyle motivation, or they want the "easy button".

Alyssa Dyer · Answer

@Nicholas Krogmann I can only speak for the OKC market, but here they're tough to find. I could snag 20 cash flowing 8 caps in a month here but they're also single family. I've seen maybe 2 MF in the last 50 deals that make sense. You can find them though! It's just up to you what your time is worth you know? Is it worth it to wait 8 months looking for multi when you could have been cash flowing with 3 SF during that time.

Nicholas K. · Answer

@Michael Goldsmith

Thanks Mike!

Analyzing Deals....Are they that hard to find?

Most Popular Reply