Evaluating deals: the best place to get each piece of the puzzle?

Question

Okay, I'm starting to wrap my mind around how to evaluate deals (buy and hold rental properties). I see how you have to go through many different listings in order to find the right one. My lingering question is where you source each piece of information to plug in to the calculator.

If I'm trying to evaluate the total income minus the total expenses, and as a result the cash flow and ROI, where do I find all the different values that go into it? I ask because I've heard many different things, everything from using other websites, talking to people, working with a realtor, looking at places that I've sold, etc. I'm just not sure which goes with which.

1) Where do I source the monthly rent value? I am inclined to say it's through finding what similar places in the area are renting for. What's the most accurate way to find this out?

2) How do I know if the price of the home makes sense? I've gathered it's through finding comparable places that have sold recently. Where is the best, most accurate place to find such information?

3) Taxes, insurance, similar fees like that. Whom do I go to to learn this information?

4) How much to set aside for maintenance, capex, and similar expenses. Is this a percentage value of what I purchase for, or are these solid numbers to be found through somebody?

5) Property management, closing costs. I'm guessing I ask the managers and realtor respectively what they charge. I know the 10% rule of thumb for property management, do any of these other values have rules of thumb or do they need to be researched exactly?

6) Repairs. This confuses me, I can tell from a basic layman way that something doesn't "look right" and should be repaired, but how do I know these costs professionally?

7) Other numbers: what else am I missing? Just for initial calculation purposes.

Again, I don't want someone to do the work for me, I just would like to know where each piece of the puzzle is sourced from, so I can accurately evaluate deals. Thanks!

Jim K. · Answer

@Jared G.

This is what I mean by "diarrhea of the fingers." You have seven points here that include, by my count, at least 28 questions that need to be answered in this post. What kind of person that actually knows what they're talking about is going to sit here and write The Book of Jared just to help you out?

Let's address just one of these, NUMBER ONE. For reference purposes, here it is again:1) Where do I source the monthly rent value? I am inclined to say it's through finding what similar places in the area are renting for. What's the most accurate way to find this out?

Looks like two questions to you, right? But is it? NO. Mostly because there are questions that need to be answered before you approach your questions.

So first of all, where the hell are you? You'll notice that you report no location next to your name. If you live in a very expensive area it's doubtful that you're planning on taking your first steps investing locally. If you live in a relatively poor area, as I do, you'd be silly not to. The answer to this question depends heavily on that. Let's say that you've decided to invest LOCALLY, in a place like the Burgh, as I do.What does your wall look like? That may seem like a stupid question, but if you were to take a look at my wall, you would see a multipage blown-up poster map of my target area from Google Maps, enlarged enough to show individual properties. My target area includes about nine thousand residents, no more. This is in a county of 1.2 million, in a metropolitan statistical area of 2.3 million. Now I know a bit about some other areas of the city, but THIS is the area I study. This is the area other local investors in my area call me about when they need information.

It is purposefully one of the oldest (and trickiest) areas of my region. I have read, to date, two books on it. I can tell you property details about it that local amateur history buffs, the old farts who sit around and scratch themselves recounting their maudlin Alzheimers-tinged nostalgia about "the good old days" will never know. I can do this because I'm not an amateur. I've been down to the courthouse and looked into the records of this particular area far back enough to when county clerks wrote out the deeds to the properties in longhand. Why have I done these things? BECAUSE I AM LEVERAGING EVERY LAST SINGLE POSITIVE ASPECT OF BEING A LOCAL INVESTOR THAT I POSSIBLY CAN. Because this knowledge is how I make money where others lose it.

NOW I can get back to your question. How do you know what monthly rent values are for an area? Well, you really CAN'T EVER KNOW. Your best guess is always going to be a range. This is why I always laugh when I see guys with fifteen posts here on Bigger Pockets confidently tell the community that they KNOW that a particular property is undervalued, usually by a huge amount. These postings are a dime-a-dozen here. "So, like, I just bought a fourplex in XXX. Combined rents are $3200/mo, but they should be $8000. So how do I tell the tenants I'm raising their rents to get to market value?" When I see a post like this, I immediately know the person posting it is totally full of crap.The obvious places to start looking to understand what rent you should be charging are rental websites. Find addresses within your target area and see what they go for. But in my target area in the oldest metropolitan area in the USA, many apartments never end up on apartment.com or even Craigslist. It's the old-fayshioned sign up from that's king. I carefully look at those and set up appointments to look at quite a few of them, while researching others through the county real estate portal. I pay attention to many factors of other apartments in coming to an understanding of what rent for my place in my target area should be. I've been doing this for years -- this is how my wife and I spend many of our weekend hours. But it's just a series of educated guesses, really. And there are multiple factors that go into this rent calculation.I am a DIY landlord. As a DIY landlord, my tenants deal with me personally. They call me up when they have a problem, and I come and fix their problem or send a contractor. There's no waiting list or putting in work orders. The kind of long-term tenants I'm looking for value this immediate contact greatly, and so, I can charge a premium for it. On the other hand, if I were a real slumlord, and tried to defer maintenance wherever possible with excuses, people just wouldn't tolerate that UNLESS THE RENT WERE SIGNIFICANTLY LOWER. Of course, I can't charge this premium up front when I rent an apartment to a new tenant. That understanding has to be reached by the tenant over time. That's something I look at when it comes time to revise the contract. That's one additional factor that goes into my rental estimates. I don't deal with Section 8 apartment yet. I will, soon, and that's yet another aspect of the rent calculation problem I'll need to learn.

And this is not even what you really asked.

The most accurate way to know what a rental property in your target area will go for is to own a lot of properties in the target area and have experience raising rates to the point where tenants leave. That's the only way to really get the most accurate range possible. The range from where you have 80%-45% occupancy is the most accurate rental estimate possible. And that's how much YOU can get out of THIS PARTICULAR PROPERTY with the tenants that YOU'VE experienced, no more, no less. It's still just a stone's throw away from a wild-a$$ guess.

So you can immediately see how overconfident, swaggering types end up abruptly disappearing from these forums all the time, right?