Updated Deal Analyzing guidance, anyone?

Question

Hey there BP Community! I hope everyone is doing well.

I jumped on to BP about six months ago, started reading and learning and in the last three months I've picked a Contractor, an investor-friendly Real Estate agent and started analyzing deals. I am just getting a feel for analyzing deals, so this may be a very silly question, but it seems like the BP videos I've watched on deal analyzing are not up to date when it comes to hot markets like Denver (Calculating Numbers on a Rental Property Using Four Square Method - 2017, How to Become a Millionaire Through REI - 2020, Real Estate Investing Rules You Must Know 2%, 50% and 70% Rule - 2020). A lot is happening and it seems like the market is changing quickly. I tried to find some answers by digging in what's already been posted in forums, but maybe I am looking in the wrong place (search: analyzing deals)?

I'm interested in small multifamily (Duplex) properties to occupy one side and rent the other. I'm trying to find a resource/guide that can help me better understand how to shake out the best deals quickly. I'm reading the Multifamily Millionaire currently as well. I've gone over chapter eight twice now about finding deals.

Can someone either breakdown the process of finding and analyzing deals, or point me in the direction of a resource, please? I'm setting up searches and getting emails, I'm looking up deals in several areas, I'm trying to use the 1% rule (realizing it's <1% nowadays) and looking at the BP Rent Estimator to see if the deal makes sense, but I feel like I am missing something in how to scan through a lot of deals and finding the deals that I should be taking a closer look at, then putting the BP Calculator on that smaller number of potential deals. Btw, I am using the Rental Property Calculator. Is that the right/best one to use for small multifamily?

Any suggestions would be greatly appreciated - thanks in advance!

Ben Rhodin · Answer

Hey @Andre Galaviz! Congratulations on diving into the crazy Denver market, and yes as you may be noticing the small multifamily realm is a very tough market here in Denver right now. There is very limited inventory, and a lot of capital swooping them up real fast. I would be glad to give some advice on your search and hopefully, it helps!First of all, I would through the 1% rule out the window here in Denver. It is more of a guideline, and at the price points here in Denver, it just simply doesn't make sense. buying an 800k duplex, that has a 2/1 on each side, you would want it to rent for $8000 a month. It's just not going to happen. Secondly, I didn't see it in your post, but what are your goals with this purchase? That is how I approach setting up searches and looking for properties with my clients. As a deal is going to look very different for a client that is house hacking and just wants to cover half their expenses, vs an investor trying to get $200 a door. So I would sit down and figure out a realistic goal for your investment, whether that is $100 a door, $200 a door, or whatever. That way you have a benchmark and clear criteria that you can go after. Thirdly, The clearer you can get with your criteria, the easier it will be for you and your Realtor. If you say I'm just looking for a deal, it's going to be a lot tougher. But if you say, I only want to buy a duplex in Wash Park that will produce $200 in cashflow a door and require at most 20k in rehab... then you'll have a much easier time finding the deal that works, and not have to sift through the junk.Fourthly, If you are after Cashflow, personally I would look elsewhere rather than small multifamily here in Denver. Or think about creative rental strategies. If you want multiple units, you may think about going with either medium-term tenants, or if you look in cities that allow them, STR could work well also. Or restructure and find Single-family properties, that have a Mother in Law suite, or can have one added, and rent it like a multi unit. It will be very challenging to find cash-flowing properties with a simple LTR strategy here in Denver, our rent to price ratio just isn't there.To finally answer your question, yes the rental property calculator is great for analyzing the deals. If you want, I am happy to walk you through a few analyses, or help flush out a strategy that will get you to your goals quicker! Your agent should be your best resource for this stuff, especially if they are investor-friendly and do it themselves. Let me know if there is anything else I can help with!

John B Clark · Answer

Hi Andre, you mentioned defining your crystal clear criteria…just as an fyi in case you haven’t read it - Brandon Turner’s first book on multifamily investing has a few chapters that are great guides to help you define your crystal clear criteria and why it’s so important. Even if you don’t buy multifamily, as a rookie, I found the concepts super helpful. It helped me think through and define not only my criteria, but even a plan to get there.

David Avery · Answer

I personally did 5 homes there.Average buy was $40,000 - $55,000Competed with about 3-4 other flippers their.Made $75,000- $80,000 profit each house.I did all the work.Did 31 others for top agents that owned properties, Including Edd Fishlock and Kevin Cotter ) He has passed while I was there. Also two wholesalers, Colm Mc Commick and Zack Wilson. and a few for investors both in Pueblo and out of the Springs.What a great spot too buy great deals!

David Avery · Answer

I would have an appointment with like 2 or 3 brokers of the largest RE companies within 15 minuets of your home.Tell the broker that you want to work with the top agent in his office .I would not work with any agents that their assistance . Just the agent. Maybe he/she closes like 25-60 deals a year.Keller Williams, etc.Don't discount Pueblo for the deals, Edd Fishlock at Keller Williams is the agent.

Andre Galaviz · Answer

Thanks @Ben Rhodin for all your info. I really appreciate you taking the time to share your knowledge. I really appreciate that the Denver market is tough and as a newbie investor, it seems like the alternative (long distance investing) is equally, if not more of a challenge. My first goal is to get in and get started (learn and grow personally). I am fine with bringing in $100-$200 per door if I can as long as the risk of losing cash is minimized and I can grow equity in each property. Currently, I am thinking about renting the SFH we live in now, pulling cash from either a cash out refi, or a HELOC, if needed to either put more money down to buy a property, or pay for any rehab. My second goal is to grow equity in each property and turn that equity into more properties (build a portfolio). My ultimate goal is to create wealth for my wife and two kids; something that I can pass on to them. I'm guessing you've never heard that before, right?! Seriously though, I don't want to count on income from just my job and I can't pass that on to my family, plus, this seems a lot like producing events, which I did for a decade. Talk about risks!What you're mentioning about being really clear is very helpful. I will make time to get crystal clear. I really appreciate the examples you gave in your fourth point. It definitely opened my mind up to other possibilities. Next step, get clearer on my goal - thanks!

David Avery · Answer

Get the best Real Estate agent in your area, Top in sales. Make sure they answer the phone or text within an hour. They fit your time schedule and sit down and listen to your needs.Best advise you can have right now.Pueblo has screaming deals!

Andre Galaviz · Answer

I am actually listening to that book right now, John. Thanks for the suggestion. Glad to know I am on a good path based on your suggestion. I will look for that chapter and review it again!

Andre Galaviz · Answer

That's incredible!! I've started sending some properties I've found to my contractor, who may also partner with me on my first deal. My wife and I are planning on going down there next weekend to check out some of the properties first hand and talk with some of her relatives about the areas. I really appreciate you sharing your knowledge @David Avery!

Andre Galaviz · Answer

Thanks again, @David Avery. I appreciate it greatly. I took your advice and checked out some Multifamily in Pueblo yesterday and today. My wife has relatives there, so we will be talking with them more about the area and opportunities.

Andre Galaviz · Answer

Thank you @David Avery. I appreciate your advice. Any tips on finding top agents would be great.