Realistically, what is a "good deal"? Especially for a new person

[Josh Lyons]

I'm new to BP and trying to find and buy my first investment property to buy and hold. I'm in Charlotte, NC. I've read a lot about the simple and very important advice that "you make your money when you buy." You have to get a good deal up front. My quick question... for a new investor without many connections, resources, access to MLS, etc., how good of a deal should I be looking for realistically? For example, should I be expecting to find something 10% or 20% below it's market value? How prevalent are the 10% or 20% below market value deals? What about in a sellers market? I'd also appreciate hearing any stories about how you found good deals... such as the percentage they were below market value and the method you used to find them (i.e. through a connection, from MLS, "driving for dollars", direct mailing...). Thanks.

[JD Martin]

Well, for starters, percentage below market doesn't really matter that much on a buy and hold; there are markets where you could buy a property 50% below market and still not have any cash flow on a rental property. Of course, you don't want to be upside down if you have to sell, so it does matter, but theoretically you could be upside down on a property forever and make a boatload of money on it in rent.

Work your way backwards. Figure out what kind of property you want to rent out, where, and to what class of tenants. Do some research and see what market rents are for what you want to do. Now figure out your baseline costs - property management, taxes, insurance, etc. Now look at property that meets your goals - if you buy that property, how much does it cost you to hold that property every month? More than the possible rent? Bad deal for buy and hold. Break even? Probably a bad deal unless you know there is about to be massive appreciation in value and rent. Way less than the possible rent? Maybe a good deal, so long as you have looked at other factors - it's not in a rapidly depreciating area, for example.

Market value is really just a running average of numbers, constantly shifting. Technically, market value is whatever you pay, because you are part of the market. Potential market value is something else altogether.