Analyzing Properties to Determine Good Value

[Bryan Parks]

I am new to investing completely and I do have a good line of credit and have been approved for approximately a 120,000 loan. I guess my question is centering on the 70% rule and learning how to assess a good deal when I find one. There is currently a single family home selling for a reduced price of 99k and the comps around the area are selling for 120k. Can I still use the 70% rule for determining an offer on a house that has already been reduced? The quick estimate I received on doing it 55% with a quick estimate of 10k in rehab would be around 74k max asking price. Now, just to be clear my family and I plan to move into our first property and sell or renovate in a year or two, now, with that said would that also be wise to attempt to get the FHA 203k loan instead of my approved bank loan, as well how realistic would a low offer like that be accepted or is that only in the case of a motivated seller? Again sorry I am sure this is a no brainer to many of you but I just like to clarify some of what I learned and see if I am on the right track.

[Michael R.]

I don't want to tell you what to invest in -- really that's going to have to be what works for you and what will get you to your goals. For me at this point - while I own two SFH's (one as a rental and one as a primary residence) neither of these were meant to be true investments at the time of purchase. I have made a place for these houses as part of my long term equity building strategy. If I came across a SFH that fit my objectives and investment strategies and was a good deal, I would not pass it up.

But in general what I have learned here on BP is that I need a strategy and criteria.  So for example - my current strategy for my next acquisitions will be cash flow.  For this, I will look for multi family properties with 3 or 4 (no less than three) units.  While true that I am building equity, that is just a bi product in a multi family situation.  Cash flow is the main objective. 

So from there -- what are my criteria?  Location, Unit #, purchase price, cost of debt, taxes etc etc etc etc....

I strongly suggest hitting the podcasts up -- yes there are well over 100, but start at 1 and go :-)  I listen to at least one a day.  Your list of books will grow - but eventually you will start to have an understanding of what is a priority for you to read and what you will shuffle to later on your list.

The ARV (After Repair Value) is crucial to knowing the value of the prospective deal. If you search BP you can find cost estimate worksheets in excel formats. J Scott also wrote a book which is available in the marketplace called The Book on Estimating Repair Costs

Also -- you can evaluate deals leveraging the Bigger Pockets Calculators -- this may help you get an understanding for what numbers you need to consider when evaluating a deal.

The big thing to remember is that the numbers don't lie and they need to make sense.  If you struggle further -- the BP community is here to support what you are trying to do.  Because we are all trying to do something similar.