Property Analysis

[Richard Villandry]

Hey guys,

I am new to starting out and have a friend who wants to get into buy and hold investments. He wants me to take care of finding potential properties to look at. What's an effective way to to see if a property might cash flow by just skimming though them. I find my self spending to much time running all the numbers on one property to find out it will not cash flow. Any ideas would be greatly appreciated.

Thanks

[Joe Villeneuve]

Eventually you find that properties in each market, or zip code, or even group of blocks, form a pattern.  What you will do with experience, is look at the sq ftg of a house (comparing apples to apples...such as like # of beds/baths), and the current sales price per sq ft, to see if the cost to buy is workable. Next, you have to learn how to estimate rehab.  In my case, if I were just starting out, I would focus on only doing the magic three rehab items...floors, walls and kitchen, as in new floors, new paint and new cabinets/counter.  You''l find there will be a pretty tight range for cost based on the size of the house.

Then, the most important step...reverse engineer you analysis. 

Start with the comps, subtract what you want to make on it (or don't bother), subtract the rehab, subtract misc. costs (closing, finance, etc...) and what's left is what your offer can't exceed.  That's for buying.

Now, for cash flow, take the rental comps (just like sales but for rent), subtract tax/insurance, subtract what your minimum cash flow is (again, if you don't, why bother), subtract 10% for property manager (even if you aren't going to use one...now), subtract mortgage payment (if any), subtract at least 3% for down the road problems (this % will vary).  If you don't have a negative number, you're good.  If you have a negative number...walk away.

The numbers don't lie, so don't argue...you'll lose every time.

Joe Villeneuve
REcapSystem
A2REIC