How Do I know if it's a Good Deal

Question

Hello BP,

Okay so I'm new to this, I'm talking novice new.  I'm looking to get into buy and flip properties, but eventually get into buy and hold.  One thing I keep hearing over and over again is, you gotta make sure it's a good deal, the numbers have to make sense.  To someone's who totally new to real estate, that's confusing.  How do I know it's a good deal?  I certainly don't want to get into a bad deal and not be able to move the property.

Any advise?

Jon Klaus · Answer

Indeed, Ben Josh, and Brandon go beyond the numbers to discuss the qualitative aspects to evaluating properties In podcast 61.  Don't worry about learning everything, because you won't. Just keep learning and run your deals by BiggerPockets.

Ben Leybovich · Answer

Look up these:

Cash on Cash Return - CCR

Capitalization Rate - CAP Rate

Internal Rate of Return - IRR

Debt Service Coverage Ratio - DSCR

Once you understand those, you will begin to understand what a good deal looks like in terms of numbers.  And this will be about 10% of what you need to know - REI is kinda tricky :(

You should find all of the answers to the above right here on BP, and feel free to reach out!

Good Luck!

Michael Lee · Answer

I agree with @Jon Klaus a good deal is very situational and depends on what your criteria is. A good deal to me may not be a good deal for you. Just take a little bit to learn as much as you can and what your risk levels are and you will soon be on your way to making it big. BP always has your back.

Chris Vail · Answer

@Denayer Burns

I would make your way over to the "Learn" section of the site lots of great resources there. Start with the Ultimate Beginers Guide which gives you a very good overall picture.  There are so many different roads you can take in real estate investing that there isnt just one answer to your question but the closest generic answer I can think of is the following...  A good deal is where the actual performance of an asset meets your expectations of profitablitiy when you went in to the deal.

Ben Leybovich · Answer

@Denayer Burns

When it comes to deciding whether something is a good investment or not, there are tangibles and intangibles.  The tangibles are these numbers we've been talking about, and that's the easy part.  If you can do math, I can teach you numbers in 3 hours.

Now - once you have the numbers, what is the perspective?  Seeing past the numbers is the hard part, and this is where the newbies often get themselves into trouble.  For starters, listen to Podcast 61 - 2 hours of us talking about exactly this kind of thing.  Also, look me up on Amazon - the eBook we discussed in the podcast is going to be money well-spent for you.  Also, I am just about ready to publish another one that goes a bit further - I'll be happy to send you the Word doc if you e-mail me.

Feel free to reach out and good luck!

Jon Klaus · Answer

Listen to the BP podcasts.  If you listen to all of them, you will have finished your freshman year.

Denayer Burns · Answer

@ John Byrne, thank you for breakdown, that gives me a better understanding.

@ Ben Leybovich, I've taken down the terms, homework for tonight.  Interesting thing you said that learning this information is about 10% of what I'll need to know.  What do you suggest as next steps regarding learning the business?  Also, short sales, hard niche to get into or hard to master?

Denayer Burns · Answer

@ Chris Vail, thank you for the tip regarding the tip regarding the Ultimate Beginners Guide.  I've downloaded and started reading, lots of good information.

Jon Klaus · Answer

You should not be buying retail, but you can run your numbers on any property just to get comfortable with evaluation and analysis.   In St. Louis you shouldn't have trouble finding decent candidates on paper. I say on paper, because even if the numbers look good, but you are in a bad neighborhood, your returns will be hurt by high turnover, vacancies, expensive make readies, and property crime.  These are reasons to accept "less" return in better areas.

Denayer Burns · Answer

@ Jon, thank you for the information. I know that I have a lot to learn.  So another question should I base my desired net income on retail comps?  I know that I will want to stay with low to moderate risk initially and the personal time investment equates to all as much as possible.

How Do I know if it's a Good Deal

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