How To Analyze Any Property In One Minute Flat!
How to Analyze Any Property in Less Than One Minute Flat!!
By: Larry Goins
How many times have you seen a run down vacant property and
thought to yourself... that would be a good investment? You
see it for several weeks or months and do nothing about it
and all of the sudden you see someone is now rehabbing it
and you see a "for sale" or "for rent" sign in the yard.
Then you say to yourself... "I knew that would be a good
investment! Darn, I missed that one"! You just weren't sure
how much you should offer and how much profit you should
allow before making an offer.
Well, I want to take the next few minutes explaining exactly
how much profit you should allow whether you are buying a
fixer upper or buying a property that is already rented or
ready to rent or sell.
The bad news here is that there are as many different ways
to analyze a deal as there are ways to put a deal together.
There is software programs that you can purchase that will
calculate your internal rate of return every year from now
until the property is ultimately paid off and beyond. There
are spread sheets that you can buy to do the same thing and
you can even design your own. You can use a calculator or a
simple pen and paper method. My point is that no matter what
system you use the most important thing I can share with you
is a simple computer term called "garbage in - garbage out".
It doesn't do any good to have the most complicated software
program if you don't know what kinds of margins you need or
if you don't know your repair cost and closing cost. You
have to know what numbers to enter into your calculations to
get the right answer. I'm going to butt heads with a few
people here but I am very much a big picture person. I don't
use all of those fancy calculations when I'm buying. I
basically need to ask the seller or realtor a few specific
questions and then I can make an offer on the spot before we
ever get off the phone. Is that great or what? This is why I
can buy 10-15 houses every month on a consistent basis.
Here are a couple of hard and fast rules of thumb. And I
want you to keep in mind that they are just what I said...
rules of thumb.
The first rule of thumb when analyzing a deal is very
simple: "If you need a calculator, it's probably not a
deal". Let me explain. If you can look at a deal, knowing
the after repaired value, the repair cost and how much they
are asking then you should be able to tell whether or not it
is worth pursuing. If the profit numbers are so close that
you have to figure it on the calculator then you probably
need to say "NEXT" and move on to the next property, after
making your low ball offer of course. Let me mention here
that it is extremely important that your deals are home
runs, especially your first few. That is the critical stage
in your investing career that will make you stay in or get
out. The next rule of thumb is also very simple. "If you
have to ask someone if it's a deal it probably isn't". Lets
face it, you have at least read some books, been to a
seminar or two, taken an investor to lunch, listened to a
teleconference or training audio or something. You know what
to do for the most part. YOU can tell whether it's a deal or
not so if you have to ask someone then it probably isn't.
Now, how do we put all this stuff to use? As I mentioned I
only need to ask a few specific questions before making my
first offer right over the phone. Here is what I need to
know before making an offer. I need to know the after
repaired value, the amount of repairs and closing cost and
that's it. And if it is a rental property then I want to
know the rent or potential rent. Sure I will eventually find
out more information but we are talking about getting our
offer out there on the first call. I know what your
asking...How much should I pay. This is very simple. If you
are looking at a fixer upper then you don't want to have any
more than 70% of after repaired value invested and this
includes the purchase price, repair cost and closing cost.
Keeping a margin of 30% insures that when you are finished
making the necessary repairs, after closing cost you will
still have 30% equity. Then you can sell it, refinance it
and pull out some cash on a refinance or you can lease
option the property. Now, if you are looking at what I call
an "instant landlord" property then you can pay a little
more than 70% of value. After all there are no repairs to do
on your part. My rule is not to pay anymore than 80% of
value and maybe 85% of value if the cash flow is good and
there is good possibility of appreciation. I have used a
simple calculator for years to figure what to offer while on
the phone but with having several people in my office that
work all day making offers and buying property for me, I
recently had a top notch programmer design me a simple, easy
to use computer program to use in our office to help my
buyers make the calculations very fast and accurate. One of
my people who normally makes between 8 and 10 offers a day
told me that on the day he started using my new "Ultimate
Property Analyzer" he made 17 offers in that first day
alone! I hope this article has helped you to determine how
much you should offer for a property... FAST!For a
complimentary copy of my Ultimate Property Analyzer please
visit www.FreePropertyAnalyzer.com. For more articles about
investing, a free weekly teleconference for investor
training, wholesale property listings and investor financing
you can visit www.LarryGoins.com. Be sure to sign up for our
free weekly newsletter for investors. Thanks, Larry Goins
Larry@LarryGoins.com
About the Author
Expert Real Estate Investor, Investor Trainor, Mortgage Lender & Broker