How to Analyze a Real Life “Buy, Fix, Rent” Deal [Video Tutorial!]

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“You make money when you BUY not when you SELL.” This is a common belief shared in real estate investing circles. And you know what? It is the truth!

So many people lose money on an opportunity because they do not analyze a deal properly. Whether you are a newbie or a seasoned investor, you must be able to quickly and effectively analyze and underwrite deals. In today’s video, I analyze a recent “buy, fix, and rent” opportunity I am considering purchasing. I analyze the deal and share three tips to never forget when analyzing an opportunity.

Related: How to Make $100,000 Per Year with Fixer-Upper Rental Properties

Let’s get some discussion going on this video! Any questions about the analysis process? Do you do anything differently?

Thanks for watching and be sure to use a comment!

About Author

Matt Faircloth

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area. One of DeRosa’s mantras is “to make money while making a difference.”

24 Comments

  1. Kent Stauffer

    Nice video. Exactly what I want to be doing, the numbers even match up except that the properties in the area that I’m investing are duplexes. I’m in the process of raising the purchase/rehab cost in order to acquire for cash to hopefully purchase at a reduced cost. Then finance all the cash backout and repeat!

    • Matt Faircloth

      Hey Kent,
      Thanks for the comment. Small multi is a good place to start also. The main difference is that you will need to account for some utilities on the landlord side. You said you are raising money – are you lookingoing to raise investors in your deals or earn the money through other activity?
      Matt

  2. Paul MacInnis

    Great stuff, Matt. Thanks for that. Question – you said that 110k was a conservative estimate of a refi value or sale price…..let’s say it came in at 130k and you decide to refi. Do you take the full 80% of 130k? You’d obviously have some extra cash – but also a higher mortgage payment. Cheers.

    • Matt Faircloth

      Hey Paul,
      Good question. For me, if it appraises for more I will pull as much as I can out of it, as long as it cash flows. You may have heard this before, but money is cheap right now. That means that interest rates are so low, money doesnt cost much to borrow and you can put borrowed money to work in other deals and make much more return as compared to the interest rate. Make sense?
      Matt

  3. Tony mccargar on

    Nice quick video. Reaffirmed my convictions. Geographic locations are a funny part of real estate. I have a 3/2 in one area that rents at 1200, and a 1/1 condo in another that rents for 1200, go figure. However the 3/2 cash flows better.

    • Matt Faircloth

      Hey Tony,
      Thanks for the comment. You are correct, the local market can make a house in one area look like a great deal and the same house look like a dog in another. For your condo deal is it the HOA / Association fees that are throwing off that deal? I have heard that they can do that on rentals. I don’t own any myself.
      Matt

      • Tony McCargar

        Yes, you guessed it. Normally I wouldn’t have bought into a condo but these are very upscale so the level of renter is very desirable. Also here in Durango the snow removal costs are very high so having that built into HOA is good. HOA is a part of rental cost so that is what lowers the return

  4. Justin R.

    Thanks for taking the time to make the video. Curious why you stopped at the NOI and didn’t discuss Capex in the videos before mentioning the overall return. How do you think about that when evaluating in a case like this?

    • Matt Faircloth

      Hey Justin,
      A few thoughts on Capex. I don’t focus on it too much on this deal as we are doing a full renovation, so in theory items that would require capital reserves will be far in the future. That being said, it’s always good to play the long game so on this deal I will still set aside some money into a side savings account each month to account for capital expenditures far in the future. In short, I should have included a small reserve of $500 per year in my calculations to be safe.
      Matt

  5. David Goings

    @Matt

    Right on!

    Two small thing’s I would add is building in a buffer for your contractor if “surprises” arise as well as adding in the holding costs if you’re going to market with no tenant.

    Not huge cost additions cause you already took all the big stuff!

    Jersy taxes….ouch.

    Keep up the good work sir,

    – Dave

    • Matt Faircloth

      Hey Dave,

      Thanks for the comment. You are correct, “contingencies” are important as a just in case padding. I typically use 15% of construction costs in my budget. Carrying costs are important as you said, including real estate tax, insurance, and debt service. Great point!

      Matt

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