How do you research? What constitutes "good" stats?

Question

I realize this is a very beginner question, but surprisingly I haven't been able to find a good answer with the guides and videos.

What actually constitutes good stats on a property? Every podcast story seems to feature investors who START with "I found this great property..." - but how do they evualute what's "great"? The guides here do a thorough job of defining the terms and strategies, but what about the numbers? What are "good" numbers for a beginner? Take Baltimore, MD for example. What's a "good" neighborhood there? What's too expensive (this one's probably easy)? Which areas are very affordable for the WRONG reasons? Which are up and coming and good for a first timer? Right now, the listings are like Greek to me. I know the definitions of things, but not if those values are good or not.

I'd just love an example of what, specifically, would be the numbers on a property that an average first-timer (buy and hold, rent out the rooms) should be looking for?

The best analogy I can think of is asking someone to put together a great baseball team and defining the terms average, home runs, and RBI but without any context of what typical numbers are. Sure, you could go with the players with the highest stats possible - but they won't be affordable. Or you could go for the cheapest players on the market, but their stats won't be good. I just want the housing equivalent of "good all around" stats for a given neighborhood so I can have a starting point and continue my research from there. What constitutes a great find? What qualifies as a hard pass? It's been difficult for me to put information together without context. And this is after reading and listening to tons of material.

Thanks all! I appreciate the help, I know it's out of your way.

Rich McElaney · Answer

@Jared G.  Like you, I’m new to the investment world and there’s so much information available it makes my head spin. I’m a data junkie and love to learn but there comes a point where you have to take definitive action to add depth to your understanding.

For me, one action step has been to learn where the experienced investors are and connect with them to speed up my understanding. I have found that the people in the meetup groups I’ve been to are generous with their time and knowledge.  As @Ned Carey mentioned above, he’s provided me a front row seat to understand the deals he’s involved with and how he goes about putting them together. While the studying I’ve done helps me understand the concepts he’s talking about (2% and 70% rules among others), being on the scene to see things in the real world is invaluable.   So Google “real estate meet ups Baltimore” , pick several and go network.

In addition to defining your strategy/focus as Ned mentions above,  another action step is to lay out the steps you need to complete (preferably in priority order) to set yourself up for a faster ramp up in your area of focus.  Items like forming an LLC, getting a logo and a website, business cards, finding people you can work with (contractors, lenders, real estate agents, real estate attorneys) to support your efforts etc.

The bottom line is this stuff takes time - so be prepared to give your patience a workout!

Ozzy Sirimsi · Answer

Hi @Jared G.

Ned basically explained almost everything.

I think you should but J. Scott's book an estimating rehab cost, it is very clear and helpful to anybody.

It will tell you what to ask to contractors, find out your local prices by talking to contractors.

Then find an agent, go check houses, look at the list, decide what needs to be done.

Your agent should provide you comps, so you know if price is good or bad.

If everything is greek to you, you might want to start by getting professional help as much as networking.

Good Luck!!!

Ned Carey · Answer

@Jared G. look under the tools tab for the calculators and the education tab for the free guides. This stuff takes time. You are not going to learn it all at once. But gradually it will start to become more clear.

Let me give you an example. You are driving around and you see a house being rehabbed. Stop, park the car and know on the door. you will either meet a contractor or a rehabber. If you meet the rehabber you can ask him about his deal. How did he find it?  What are the numbers?  What repairs is he going to do?

Or you might meet a contractor. Ask him what he is charging for the job. See the quality of his work.  Either way you have learned something and made a valuable contact.

Another idea. Go to a public onsite auctions. Many areas have public auctions other than foreclsoure auctions. Many properties sell investor to investors via public auction. They are held onsite so you get to inspect the property before the auction. Go through thees houses and take your best guess at what it will sell for. Then watch and see in real time what other investors think its worth.  After the auction ask one of the bidders how he evaluated the property.   Why did he bid what he did? Why did he stop bidding when he did?  How much does he think it will sell for when renovated?  How much did he think it would cost to renovate?

This is what I mean by being out in the market. The more you are out there the more you will learn. Also opportunities will start to come your way just because you are out there.

Ned Carey · Answer

@Jared G. It depends on lots of factors. What is your goal? do you want buy and hold rentals? Do you want to flip houses? Are you looking for cash flow or are you  more interested in appreciation? What is your time frame? What are your financial resources? What is your tolerance to risk? All of these factor into what is good for you.

I am surprised you haven't come upon the 2% rule or the 70% rule. Those define what makes a good deal - at least in some peoples eyes. There is a lot of information here on how to evaluate deals. however knowing the formulas on how to evaluate deals is only part of equation. You need to know your market to know what numbers to plug into the formulas.

You aren't going to learn the  market here on BP, Nor on any website. You don't learn your market behind a computer screen. You learn in out on the streets looking at and evaluating hundreds of deals. Also you need to network with other investors and learn what they can tell you about their deals and their specific sub market and strategy.

I suggest you start going to some of the local meetups and REIAs or perhaps the Baltimore landlord Friday lunch. I was there today and spent the rest of the day showing  @Rich McElaney  and two others some of my properties

Regarding neighborhood, in Baltimore, that is one of the toughest questions to answer. You can make money in any neighborhood. But not every neighborhood is right for you based on the questions above.

Jared G. · Answer

@Ned Carey Thank you, Ned, for your thorough reply. I don't want anyone to get the wrong idea; I didn't ask this question because I think someone should be telling me the answers. I just want examples and context to learn from so I can then go out and compare what I see to what I've learned. I've heard that advice a lot -- to go out and talk to people and see the market -- but I still feel as though I don't know anything about the subject to be able to ask intelligent (or any) questions or even understand the information I'd be taking in. When you say I should be "evaluating hundreds of deals" . . . well, I asked this question because I want to learn how to evaluate listings and deals. To be honest, I don't know what evaluating a deal even consists of. It may sound like I'm acting helpless, but I think many people overestimate what beginners know.

For what it's worth, I'm looking to buy and hold a property and rent it out for cash flow. The 2% and 70% rule are definitely on the right track of what I mean to ask. But I know they aren't absolute and I'm sure they aren't the whole story. I'd like to know what the rest of the story is.

How do you research? What constitutes "good" stats?

Most Popular Reply