10 Web Tools I Used To Turn My Deal Analysis From "Guess" To "Success"

I recently set a goal of performing one deal analysis per week, creating a documented trail of progress that I'll be able to look back on in the future. This is the first post in that series. I'm doing this for a few reasons:

1) One of the best ways to learn something is to teach it. And I'm willing to bet that everyone has something to teach, even rookies like me. If I'm more skilled today than I was a year ago, then there's probably someone out there a year behind me who could use my help.

2) Conducting this mock investment analysis is a useful learning exercise, even though I have no intention of buying this specific property. As Dwight D. Eisenhower said, "When preparing for battle, I've always found that plans are useless but planning is indispensable."

Throughout this analysis, I'll be relying on the BiggerPockets BRRRR calculator to help me with the math.

Caveats

As I mentioned, I'm a rookie. In fact, this is my first-ever property analysis. So take what I say with a huge grain of salt. If you spot any mistakes, comment below and help both me and other readers of this post to level up.

Also, I found the property below on Auction.com. Using an auction site introduces a problem- if I can't see the inside (which is true with most auction properties), how can I accurately evaluate my repair costs?

If I were actually considering purchasing this property, my solution to the above problem would be to build a bigger margin of safety into my maximum bidding price, in case a worst-case scenario happens.

For example, the current occupant might wreak havoc on the property before vacating (because they're upset at getting foreclosed on, for example), and I'd be stuck with making significant cosmetic (or even structural) repairs.  If I expect this to happen from the beginning and plan my financials accordingly, then I'll either be correct or pleasantly surprised.

Finally, I ran these numbers assuming my name is on the loan. However, I'm planning to fund this purchase with my self-directed IRA. Given that fact, in retrospect I believe the loan assumptions below are not as accurate as I initially thought (even though I'll still be a guarantor of the loan). On my next analysis, I'll fill out my loan applications with this information in mind.

Property Description

With that out of the way, let's take a look at the following property:

Confirming Property Description With The County

This is a 3-bedroom, 1-bathroom single family home in the Benton Park neighborhood of Bakersfield, California 93304. It measures 1,040 square feet and was built in 1955. All this property info checks out on the county assessor's website.

I found the county assessor's website via NETROnline, which claims to be "a Portal to official state web sites, and those Tax Assessors' and Recorders' offices that have developed web sites for the retrieval of available public records over the Internet." They go on to state that "Although not every county and parish has data online, many have home pages, and where neither is available a phone number has been provided."

If you're having trouble finding your property's county assessor, this could be a good tool to skip the Google rabbit hole and determine whether they even have an online presence.

Character of the Neighborhood

Next I pull up NeighborhoodScout.com's Crime page for Bakersfield. NeighborhoodScout has proven itself useful multiple times in my case, since I'm exclusively looking for properties outside of my immediate area (in many cases out-of-state).

This looks like a C-class (or possibly even D-class) neighborhood. Not the kind of area I'd be comfortable investing in for my first deal, so if this were a real analysis, I'd already be moving on. I've heard it said that there are very few things you can't change about a property or a deal, but location is one of those things.

However, for the sake of practice, I'll continue.

Distance To Employment Centers

I'm planning to rent to travel nurses, since I've read that they are a profitable and relatively underserved niche. So one thing I care about is proximity to the area's major healthcare facilities. Here they are, along with the distance:

1) Kern Medical Center- 6 miles / 15 min drive

2) Mercy Downtown Hospital- 3 miles / 8 min drive

3) Adventist Health- 3 miles / 10 min drive

With the property description out of the way, let the number-crunching begin.

Analysis

Property Taxes

The first calculator field to fill out is property taxes. I initially used SmartAsset.com to calculate these. This tool seemed great at first, because it lets you plug in the zip code and estimated sale price:

SmartAsset tells me the taxes are $1,188 per year. To be safe, I got a 2nd opinion from the Kern County Treasurer's website (the same site I found from NETROnline above). Turns out, SmartAsset was off by quite a bit: the assessor claims annual taxes are $1,794.39.

Moral of the story- when looking for hard numbers, always go to the original source of truth. Trusting 3rd parties (like I almost did with SmartAsset) is like playing a game of "Telephone"- the message can get garbled along the way.

Based on the total annual amount due of $1,794 and the Net Assessed Value of $117,000, I calculate a property tax rate of about 1.5% for the previously-assessed value. But I assume the BP calculator is asking for the taxes I'll pay post-rehab, once the property is re-assessed. Based on my after-repair value of $161,000 (see below), I'll fill in an amount of 1.5% * $161,000 = $2,415 for this field. However it may have been more accurate to base this figure on the amount I purchase the property for (see next section), since I believe that's when a re-assessment occurs.

Purchase Price

According to Auction.com, the opening bid for this property is $125,000. That number would be relevant if I were considering bidding on this property.

However, the whole point of this exercise is to answer the question, "At what price could I make this deal work?" This implies that I have freedom to adjust this number up or down in order to answer that question. So I'll start with an estimate of $100,000 and decrease it if the deal doesn't make sense at that price.

As an aside, I'd prefer it if the properties I analyze were as close to reality as possible. Sourcing this property from an auction site doesn't meet that criteria. Since I happen to be interested in getting my first property from a wholesaler, the ideal situation would be if I could get a hold of data (property specs, photos, etc.) from a trusted wholesaler's previous deals.  Mental note for my next go-around.

After-Repair Value

In my mind, estimating the after-repair value means finding recent comparable properties that have sold nearby. To do so, I used Realtor.com's "Just Sold" page. This tool lets you plug in a street name plus zip code, and optionally narrow your search based on number of bedrooms and bathrooms, property type, home size in square feet, etc. I decided on an after-repair value of $161,000, based on three recent nearby recent comps I found within a radius of a few blocks (one which sold for $165,000, another which sold for $182,250, and the last for $190,000):

The $161,000 figure is a few thousand less than the lowest of the three comps I found. I'm guessing I could bump this up to $170,000 and be safe. But there are rumors of a market downturn on the horizon (inverted yield curve, etc.). Again, with a conservative approach, I'll either be right or pleasantly surprised.

At any rate, this analysis is more about long-term cash flow on a buy-and-hold rental property, versus forced appreciation on an immediate fix-and-flip. So I feel OK proceeding with the above estimate.

Closing Costs

I initially decided on $6,200 as my total closing costs amount, based on what looks to be a pretty back-of-the-napkin calculation from a hard-money calculator I found at NobleMortgage.com. More about this figure later:

Repair Costs

A truly accurate estimation of repair costs would come from walking the property, itemizing any damage or outdated fixtures in both the interior and exterior, and assigning a replacement cost to each item. This is in keeping with what J Scott advises in "The Book On Estimating Rehab Costs". This is not an online tool, and I won't include it in the final wrap-up, but I'd highly recommend any fellow newbies go pick up a copy of this informative resource.

I don't have the luxury of doing a walk-through, since this is an occupied property being sold at auction (and therefore trespassing laws are in effect). Although Auction.com does occasionally provide a property condition report in PDF form, none is provided in this case. I could go with a really rough estimate like $XX.00 per square foot, but rehab costs are highly dependent on a number of factors, including region of the country, layout of the property, and so on.

The best I can do is a very rough guess. For my first investment, I've been advised to target a property which requires only cosmetic improvements (new carpets, new cabinets, new paint, etc.), since there are only so many things that can go wrong with rehabs of this nature. I'm hoping that $20,000 (approx. $20/square foot) is a suitable approximation.

However, to be honest, I suspect this estimate is low even for a cosmetic job. And I'm fairly certain that $20,000 would be insufficient to cover all the repairs in the worst-case scenario I mentioned earlier. If I were actually considering buying this property, I'd want to build in a much higher estimate here. I'm guessing $40,000- what do y'all think?

Initial Loan Expenses

Next, moving on to the loan details. I'm planning to use a hard money loan with a 15% down payment and 100% of the construction costs included in the loan. I used LendingHome.com's bridge loan form to pre-qualify for a loan on these terms, for the amount I'm looking for:

These terms are based on a credit score above 750 (which I have).

I see the holdback amount is $20,000 here, and cash-to-close is $19,798.54. My understanding is that, in order to close escrow on a hard money deal, I'd need to bring to the closing the actual cash-to-close amount, PLUS proof that I have access to the holdback amount. Anyone know if that's correct?

By the way, I have no affiliation with LendingHome, and this is not an endorsement of their services. They were simply one of many options I could have used to get loan information tailored to my property and credit rating. My goal was to reduce the guesswork for this section of the BRRRR calculator, and I chose to do so by picking a real-world hard-money lender and submitting a test application for a loan.

Closing Costs

Speaking of that "Estimated Cash To Close" figure, looks like it includes LendingHome's fee of $4,798.54. This number is more tailored to my financial situation than the $6,200 figure from RocketMortgage, which didn't solicit as much data from me before returning a dollar amount. But it's safer to go with the higher figure, since LendingHome's amount won't include title searches, buyer's agent fees, and other miscellaneous charges. I'm even going to bump this up to $8,000, just to be safe.

Loan Interest

I plug in 9.5% as the loan interest rate, 15% as the down payment amount, 2.86 as the points charged by the lender, and $1798.54 as the "other fees" charged by the lender ($4,798.54 in total LendingHome fees, minus their origination fee of $3,000.00). I chose "Pay fees up-front" instead of "wrap fees into loan", since I don't know whether LendingHome offers that latter option. I choose "Yes" for interest-only, since I can see in the LendingHome summary that "Amortization" is marked as such.

PMI

For the PMI section: LendingHome does not appear to require this for their bridge loans, so I'll choose "No".

Time Til Refinance

For "Time to refinance", I'm choosing 6 months, due to the seasoning requirements of my refinance loan (also from LendingHome, see below). And for "Estimated Rehab Time", I'm choosing 3 months (again, because I've been advised to purchase a property which only requires cosmetic improvements). Once I've got a few rehabs under my belt, I'd wager I could get a cosmetic rehab done in less than 3 months. But this is my first rodeo, and I'm expecting a learning curve this time around.

Refinance Loan Expenses

This was the section I struggled with the most. In order to get an accurate estimate for the figures below, I initially assumed I'd need to fill out an actual refinance application. So I started down that road.

Pretty quickly I realized that completing a refinance application for a property I don't own could result in the actual occupants receiving solicitations from the lender. Clearly this is something I don't want (especially not with my name on the envelope!).

This presents a bit of a Catch-22 situation: I can't fill out a refinance application without a property already in-hand, but I don't want to purchase an investment property without having an exit strategy (or in my case, a refinance strategy) in place.

So for the time being, I plugged in some very rough numbers into the BP calculator.

Update: I just got an email notification that LendingHome launched 30-year loans on rental properties as well. And since these loans are specific to rental properties, I'd expect them not to send out advertising mailers to the occupants. I'll therefore apply the same strategy I used on the bridge loan, and fill out an application for a rental loan:

Loan Amount

I'll use the original loan amount of $105,000, since I was making interest-only payments on the original hard money loan (and therefore the principal should still be the same).

Side note- I see a figure of $0.00 next to the "Purchase Price" field above, which I find strange. The application actually never asked me for a purchase price amount, which I assume is why the value is set to $0.00.

Interest Rate

LendingHome offered me a 5.5% interest rate, as shown above, for a 5/1 ARM. But since interest rates appear to be relatively low at the moment and my BRRRR strategy is meant to be long-term, I'd definitely rather avoid adjustable-rate mortgages. However, for the time being, this appears to be the best data I've got.

For another perspective, here's an article about why ARM loans may not be all bad. But it's from 2014, and apparently that's a lifetime ago in the world of mortgages. At any rate, I believe I can always refinance to a 30-year fixed-rate loan just before the 5-year deadline expires, although there are pre-payment penalties if I do so before the 3-year mark is over.

Closing Costs

I plugged in $3,069.83 in closing costs for this refi ($2,100 origination fee + $649 servicing fee + $320.83 pro-rated interest rate). This data all comes from the above screenshot of LendingHome's refi terms.

PMI

Finally, I chose the "Include PMI" option, as well as a 30-year amortization period, and clicked "Next Step".

Rental Income

Next is the "Income" section. According to Rentometer.com, I can expect a median rent of $1,149 if I were to post this property in the rentals section of Craigslist or a similar website:

The average and median numbers ($1,149 and $1,200 respectively) mean that my revenue would be approximately $1,149 - $831 = $318 per month. That amount represents gross (not net) revenue. I expect there will be other expenses, such as private mortgage insurance, homeowners' insurance, property management fees, etc. A good rule-of-thumb is the 50% Rule, which this property would not meet if I were to rent it to standard long-term tenants.

However, I plan on renting to travel nurses on TravelNurseHousing.com (no affiliation), and their parent company has a handy "Stats" page where you can plug in a city and state and see figures on how much hosts charge. I see 1-bedroom properties going for between $1,200 and $1,500 on their results page, and a 3-bedroom going for $1,900. So I feel like a monthly rent of $1,600/month inc. utilities would be conservative.

The turnover for these types of tenants will be higher, since employment contracts for travel nurses tend to be between 8-12 weeks in duration. Higher turnover means higher vacancy, but it also means higher rents. Plus, my property manager will be able to inspect the property much more frequently than they otherwise could. There's only so much damage that a tenant could do in 8-12 weeks, right? (crosses fingers hopefully)

Incidentally, I predict that this unorthodox income strategy is another reason why I'll likely need to reach out to a portfolio lender or other non-conventional loan for my refinance- I would expect conventional lenders to judge an income stream like this as inherently riskier than renting to a long-term tenant.

Utilities

There used to be a great online utility calculator called MyUtilityScore, and they still show up in Google search results, but the site appears to be non-functional as of the date of this post. So I feel like I'm on my own here.

I'll budget $120/month for electricity, $35 for water and sewer, and $30 for garbage. I suspect these may be a bit low, to be honest. But they're not my biggest expenses, so I hope a bit of inaccuracy won't make-or-break this deal.

By the way, with a regular tenant, I'd mark these all as $0 since I'd include expect the tenant to cover expenses. But travel nurses expect the landlord to cover utilities (another reason for the higher-than-market rent).

PMI and Insurance

I'll budget $85/mo for PMI and another $85/mo for homeowners' insurance.

For the PMI amount, I'm using numbers that I plugged into NerdWallet.com's PMI Calculator. The output of that calculation was $61, so $85 represents NerdWallet's figure plus some padding.

For homeowners' insurance, I found a link on TheZebra.com which says average annual homeowner's insurance in Bakersfield is $638 for a $200,000 property, or $53 / month. So $85 seems conservative.

Variable Landlord Expense

I'm budgeting 10% for vacancy rate. This is almost double the vacancy figure of 5.35% for Bakersfield on DepartmentOfNumbers. I'm using this rate partly because it's more conservative (I've never heard of DepartmentOfNumbers before), but also because I'm renting to travel nurses (see above) and I expect their turnover rate to be higher.

For the rest of these expenses (repairs and maintenance, capital expenditures, and property manager fees), I'm budgeting 10% each. This also aligns with the recommendations I've seen for repairs, capEx, etc. With an older home like this, I figure that budgeting plenty of money for repairs and capEx is a safe assumption.

Lastly, the "Future Assumptions" section:

• -1% annual income growth
• -1% annual property value growth
• -1% annual expenses growth
• -9% sales expenses (6%-ish realtor fees, plus another 2-3% for safety)

Results and Analysis

Sweet! We're done! Time to calculate the results.

This turned out to be not such a good deal in terms of cash flow. Using the 50% rule, I had expected this to cash flow at about $203 per month once I refinanced ($1,600 rent/mo - 50% for expenses - $596 for monthly P&I to LendingHome = $203). I feel like that would have been a fine deal. However, it turns out that the monthly cash flow is negative $193 per month, largely due to the $1,196 in monthly expenses.

Even if I'm optimistic, and make a couple of changes, this property barely cashflows. I tried an optimistic income assumption of $1,800/mo (closer to the $1,900.00 3-BR house I found on TravelNurseHousing while still being under), and lowering the variable expenses to 8.5% across the board. This is what I got- a cash flow of only $35/month!

And this is with a regular refinance, not a cash-out. If I tried to do the latter, the results would be even worse, since my monthly mortgage payments would go up.

Another risk factor in this deal- I'm completely dependent on my strategy of renting to travel nurses. If I had to rent to long-term Craigslist tenants, my monthly rent would be closer to $1,000 or 1,100. At that point, I'm hemorrhaging cash.

To see what impact a lower purchase price would have on the outcome, I re-applied for the LendingHome loans at a purchase price of $75,000, and adjusted the calculator to reflect the new figures. I also changed the monthly rent back to $1,600 and the variable percentages back to 10% each. Here's what I found- even at this lower purchase price, I'm still losing money ($136/month).

But as the BiggerPockets podcast folks have said, rather than say "I can't make this deal work," let's reframe that to "How can I make this deal work?" If this isn't a good deal as a BRRRR, could it work as a fix-and-flip? That's the question I'll address in my next post.

One Last Step- Sanity Check

While I found the above process useful, I'd be remiss if I didn't check in with people who have been through this process before. Which is why my last (and perhaps most valuable) tool was the Real Estate Deal & Analysis forum on BiggerPockets itself. I posted the results from by BRRRR calculations in the forums, and will update this post once I get feedback.

Summary- Tools I Used

1) NETROnline- find county assessor's / treasurer's online records

2) NeighborhoodScout- look up crime information on most major zip codes

3) Realtor.com’s “Just Sold” page- look up recently-sold comparable properties

4) NobleMortgage.com- quick back-of-the-napkin closing cost calculator for hard money loans

5) LendingHome’s bridge loan / rental loan pages- specific loan terms based on your financial score and property data

6) Rentometer.com- check median rent prices in your property's vicinity

7) FurnishedFinder.com's Stats Page- see average rent prices for corporate and travel nurse housing in your zip code

8) NerdWallet.com’s PMI Calculator- estimate how much you'd pay for private mortgage insurance on your property

9) DepartmentOfNumbers- check vacancy rates for rental properties in your zip code

10) The Real Estate Deal & Analysis forum on BiggerPockets.com

Next Steps and Take-Aways: What I'm Doing To Improve

I feel like some big obstacles on this first deal analysis were the gaps in my knowledge, (especially around refinancing and portfolio loans, but more broadly around financing in general). So I'm currently reading "What Every Real Estate Investor Needs To Know About Cash Flow" by Frank Gallinelli. It's a book that has been recommended by several guests on the BP podcast.

And I plan on continuing to write posts like this in order to practice what I learn. I'm a big believer in documenting my progress, teaching what I learn, and exposing my own ignorance. I plan on using this post to look back a year from now and reflect on how much I've learned in that time.

And for those wondering why I called this deal analysis a "success" in this post's title, it's because of the following:

1) I avoided getting myself into a situation that could have ended very poorly. I'd submit that sometimes the most successful deal is the one you don't go through with.

2) I learned a lot. This was a super-useful process for me. In particular, I learned about portfolio loans, seasoning periods, holdback amounts, and the surprisingly big impact of on-going expenses in a rental's profitability.

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This was literally my first deep-dive deal analysis *ever*. I'd love it if readers of this post would poke holes in my logic and tell me where I'm overpaying, where I'm underestimating, or what I'm leaving out.

And to any other new investors out there- send me a message if you have questions about my process above, are having problems taking that first step, or just want to network. I'm all about newbies helping newbies, with all of us leveling up together.