Practice analyzing properties

[Tyron White]

Hey everyone, my question comes from the BP podcast. @Brandon says that you should analyze at least 3 deals per day even if you're not investing yet. How do I practice analyzing deals? What numbers do I need to run and where do I get them from ? Also since I'm not searching for any deals. Do I practice with on the market properties?

[Ben Wilkins]

@Tyron White: Bigger Pockets has some analytical tools that you can try out - that's where I started. From there I made an excel spreadsheet with all of the calculations, which gave me a lot of hands-on learning of the math that goes into analyzing a deal. 

So take a look at an example from Coldwell Banking:

532 Madison Avenue, York Pennsylvania. I found this through Trulia, but it didn't have enough details in the listing. I did a MLS search and found it on Coldwell.

This is a triplex, and I would estimate the rent at $700 per month. This is based on comps in the area.

Total income per month: $2100

Expenses are all on Coldwell:

So total taxes are roughly $5600 annual. Utilities come out to$5500 annual. Total monthly between these two is $925.

I'll put insurance at $1000 annual, or $83 monthly.

Asking price is $89,900. Assuming 20% down payment, 5% interest, 25 years, your mortgage would be $420 per month.

Total expenses monthly with taxes, utilities, insurance, and mortgage is $1430

Without taking into account "percentage expenses" as I call them (vacancy, property management, maintenance, capital expenses), you're looking at around $700 for your monthly cash flow. Take out the percentage expenses, and you're probably looking at closer to $200 per month.

So what do I get from this evaluation? I think that the taxes are super high (welcome to York city, PA), that the cash flow is too low where it's at, and that I would need to make value adds somewhere. Increase rent is a possibility, or split out the annual heat cost. It looks like the property has split electric bill between the tenants, but the owner pays gas for heat and hot water (listed as natural gas heating, water radiators).

Below is a little more in-depth that shows those percentage expenses as well, which shows how quickly they can add up. Don't forget them in your practice evaluations! I assumed $0 for property management just to make this remotely possible for an actual purchase.

So pick a property through Trulia, Zillow, Coldwell, or somewhere else, and try running some numbers. If you want, post the address, run your own numbers, and I can run some and you can compare (or someone can chime in on anything that I may have missed in this example).

Long post - let me know if it makes sense, or if I can help with anything else