Evaluating if it's a good deal or not?

Question

I'm newbie investor and I've done all the reading and learning to get started. My concern at this point is this. I get allot of wholesalers emailing and texting me opportunities, any are out of state which I don't think I'm ready for. In any case, What is step one in determining if I should even looking into the deal any further? Do I use a quick "Rule of thumb" to make this determination? 50% rule? 2% rule? ARV?.... that's where I'm stuck already, I get these properties but how do I even start to determine if it's worth looking at?

In addition, How do I get all of the additional information needed to eval? Taxes? Liens? True rehab costs? ARV?... I know these are basic questions but I just don't know the step by step to even take the next step if it's worth further eval.

Hope to hear back with some great advise and expertise/experience in simply taking step 1....

Henri Meli · Answer

@Paul LaSpina . Something that's a deal for me might not be a deal for you. It really depends on your goals (short term, long terms), your resources, ... etc. Some people focus on cashflow, other focus on appreciation and others focus on both. Some are not even going to look, if the location is outside their targeted locations (state, city, ... etc). First thing you need to do is define your goals clearly. Once you have done that, the rest will come. You can get tax information on the county's website. You can get insurance information by asking your favorite insurance agent. Rehab/ARV: I think there are a few blogs on this site, which give you an idea on how to evaluate them. This site also has various calculators, which spit out various output (IRRs, CoC returns, ... etc). Looks like you have a little more reading to do :) ...

Good luck !!!

Deb Somdahl · Answer

@Paul LaSpina upgrading my BP membership for the evaluation tools was worth it for me for newbie analysis of multi-family.

Ask for the operating expenses from the current owner/seller to complete an analysis to see whether the numbers work for you. Some info you can look up (like taxes, local rent rates, etc). If you are not doing improvements, just use your offer or sale price as ARV. The template will prompt you on what factors you should consider (that the owner/seller is NOT mentioning - like big capital improvements like HVAC, roof, etc).

What I like about the tool is that I can run information with variables to see the impact on cashflow, return on investment, etc.  It will also show "rule of thumb" metrics  - even if the info doesn't always apply in your market, as pointed out.

Paul LaSpina · Answer

@Henri Meli  Well that's very helpful !! What's a CA ? Also would a residential duplex/triplex/quad have a T12? what is a T12?

Thanks Henri, you are the MAN !!

Henri Meli · Answer

@Paul LaSpina . The seller MUST provide you the T-12. This is the data for the previous 12 months. In the T-12, you should see things like Rental income and expenses. If you see a MF for sale, the first piece data should be what the seller is basing his price on. Ask the seller or the seller's broker and they should provide it to you. You might need to a CA. But it is straight forward. You can do so online or sign, scan and send back. That's your starting point. Without this data, you have no clue why the price is $1M or $100. Once you get the T-12, you should be able to perform some analysis on your own.

Paul LaSpina · Answer

@Henri Meli OK, so you bring up my point. I don't know what is the first piece of data I should be looking at?? OK, ARV is not critical, I get that for MF.... What is? what is the FIRST piece of data I should be looking at? what is the SECOND and THIRD etc...??

And where do I find this Data?

Paul LaSpina · Answer

@Jerryll Noorden Thanks for that and I get you, That's what I'm saying, I don't think those 'Rules" mean anything. My concern is how and where do I find all the pertinent data to evaluate a deal.  I think all these online software calculators are OK once you actually know how to evaluate a deal but that is my sticking point, HOW do I start and finish the evaluation of ANY deal??

Jerryll Noorden · Answer

OK everyone here talks about the 50% 75% XX % rule. even Brandon...

Here is my take on it. Anyone that says you should look into those BS rules, doesnt know what they are doing.

Anyone that says, "Ohh that is just a check to see" is wasting their time.

Sorry all "guru's"

The ONLY real check is to delete those stupid rules from your head and do the numbers without ever checking those rules. These rules can easily be misleading. They give you data that is completely pointless and useless.

That rules does not take into account how horrible that neighborhood is, and if there is even a desire to be there.

OK so you do the numbers and it works out... so now you check the rules for poopsNgiggles right? And the rule works out..

OK so that means the rule was worthless.. just a check.

Now what if the rule doesnt work out, but your numbers do work out. So you miss out on an opportunity to make a deal.

Think about it. What, where, how does this 50% rule come about? It is based on NOTHING. It is an illusion to make you feel better about a deal based on nothing!

As a scientist, I can imagine building a space shuttle on the 25% rule.  Seriously.. what the hell!

Talk to 3 agents and get 3 opinions, on ARV, on demand of that location, and house type, get you contractor to do the repair estimates, and factor in your profits, and the "Oh poop" factors, the take about 10% off of that if you are paranoid. If the deal works out sill with these numbers.. MAYBE it is a good deal if nothing terribly wrong happens.

Please dude, forget these %rules and never mention it to yourself again!

Henri Meli · Answer

@Paul LaSpina . I have the feeling you are talking about two different things here. If you strictly evaluating Multi Family, I wouldn't focus so much on ARV. I would focus on CAP Rates, Seller Asking price, Rent rolls, NOI, rent comps in the area,  ... etc. Unless you are planning to purchase a MF, fix up some units and put it back on the market. The calculator on biggerpockets asks for ARV on MF, but it is really not very relevant at the early stages, so I wouldn't really worry about it. Your focus should be to look at the MF as a business and see if the asking price from the seller fits into your strategy. You need to see how much money you can pay compare to what the seller is asking for. In other words, you need to understand at what price point, the price represents a "Deal" for you and you need to understand why.

Paul LaSpina · Answer

Thank you gentlemen @Henri Meli and @DJ Cummins

I am looking at a Multi family in Brooklyn NY, My goals are rental prop investing. My dilemma is what is step 1 to evaluating ANY property? Do I try to figure ARV first? Where do I get all the data I need to put into ANY calculators? I watched the videos on all the software from BP and others and they all look so simple putting in the expenses/costs data but where does it come from?

If I receive a lead that give me the asking price, the rehab costs, the ARV (which are coming from some other investor/wholesaler) what is the FIRST thing I should be looking at or asking for to get the data I need to make an evaluation?

DJ Cummins · Answer

Hi @Paul LaSpina,

Just my 2 cents, but i would recommend reviewing all of the leads you come across in depth.  At least for a while.  Once you do it for a bit, you can tell if something is a good deal within a couple of minutes.  That is what i would say.  And the 2% rule is very hard to find these days, so i wouldnt rule out properties because they don't hit that.

50% rule could give you a quick idea on if its worth pursuing though.  Being a Pro member on BP here lets you use all of their calculators, and that is a huge help as well.

Good luck!

DJ

Evaluating if it's a good deal or not?

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