Out of state investing (Newbie)

[Zack Hellman]

Hi,

I'm a complete newbie to this whole real estate investing thing.  I am currently reading "Long Distance Real Estate Investing", by David Green (published by Bigger Pockets) and decided to apply some of the analysis to a currently listed deal on NORADA.  The deal I chose was somewhat at random, but also looking at price points and neighborhood ratings I thought would be good for a first investment.

Below is my attempt to break down this deal.  I feel like I must be missing some key components in my analysis of the property.  I was also wondering about the NORADA site as a whole.  I see a fair amount of positive feedback on the site, but most of it seems to be several years old, do people still find this to be a good place to look?

When looking this property up on Zillow (one of the recommended steps in the book) I see they estimate the value of the property as $28,965.  This is roughly 35% the listing price, I get that they must have rehabbed the property some, but this seems extreme.

I looked at another site, Trulia, and looked at the neighborhood.  It shows the properties in this neighborhood range from 22K-70K, which would make this property 17% above the high end of the market.

The projected renal income also seems to be a bit high, but if the property really is at the top end of the market (like the pricing would suggest) this might be accurate.

If you assume the above rental estimate is accurate that would take this property from being above the 1% rule to below.

Overall I get that on a listing you would want to be aggressive, but the price seems very aggressive.  It puts this property considerably above the top of the market, would that really make sense for a rental property?  I think the more likely scenario is that it is drastically overpriced.  If that is the case is that a one off or in general is that the impression of NORADA?  Or, the final option is that I am missing some components in analyzing this deal (more then likely as this is a very early attempt to analyze a deal).  The only factor I was able to find that supported a relatively high price and rental estimate, it that it does appear to be in a lower crime part of the neighborhood (relative to the rest of the neighborhood).

Thanks in advance I appreciate any feedback on either the NORADA site, or other things I should be considering when analyzing a potential rental property that is out of state.

Thanks,

Zack

[Ali Boone]

Norada deals strictly with turnkeys, and turnkeys are typically sold closer to market value. That's pretty standard. I can't speak for this deal in particular, but you'll always pay more for turnkeys-- trade-off for not having to do any work.

The only thing I see in the deal is Norada didn't include estimates for vacancy and repairs, and I would never analyze a deal without including those. They are inevitable expenses, and there's already so much room for error on projecting numbers, better to stay conservative. Although in the case of vacancy and repairs, it's not about being conservative, it's about being realistic. 

For turnkeys, most providers use 7% of the monthly rent for vacancies (but double-check that with the area the property is in) and 5% for repairs. Add those into the expenses and recalculate that Cap Rate. And then too if you're financing, be sure to run the Cash-on-Cash to see what your real return is expected to be.

I started as an investor with turnkeys and have worked with them ever since. If you have any questions about them, reach out anytime! I can also give you info on running those numbers too if you aren't familiar with the equations.