QOTW: What is your biggest challenge when analyzing a deal?

Member since 2022 · 1 post · 1 vote

4y

good post

Investor · Arlington, VA · Member since 2021 · 9 posts · 9 votes

4y

@Lex Wilridge I chose estimating rehab costs. We have been on point with our ARVs this year and I know rising market conditions made this a little bit easier than most other years. I feel like as a new RE investor, this last years market allowed us to make some mistakes and learn, rather than really smacking us.
I have personally struggled to stay on top of and execute an established rehab process. On the year we will be 1/4 on sticking to our initial budget and the one success was on our first deal haha.
@Account Closed

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

4y

I have no problem with ARV, estimating rehab, due diligence or location.

My only problem is crunching numbers, but even that is a small problem because I'm not big on numbers. I see some people analyze six ways to Sunday, trying to find that property that eeks out another percent. I don't care. Real estate is forgiving; if you focus on the 80% solution and hold on, you'll do very well.

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Mycarlos Severino

Member since 2020 · 2 posts · 1 vote

4y

for me is always estimating rehab cost. but it always comes back to what you said, and that's lack of confidence.

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Alicia MarksPro Member

OP

Fort Worth, TX · Member since 2020 · 1k+ posts · 2k+ votes

4y

Quote from @Jose Cruz:

Being that I'm pretty new to this finding the ARV seems to be the part I lose confidence in sometimes mainly due to lack of comps in certain areas. I have felt more confident in my numbers lately learned alot since I've joined the forums but numbers just seem to be everywhere from time to time.

If you are running deals on our calculators, there's an option to share it to the forums. Great way to get extra eyes on your analysis!

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Timothy Casallas

Real Estate Agent · Queens, NY · Member since 2015 · 83 posts · 39 votes

4y

I would say right now we have been having the hardest time nailing down solid rehab numbers. We work in a few markets and none of them are the same so the same rules do not apply. I think as we get more established in our markets and build trust with the right contractors, this will no longer be an issue.

1 Reply

Bob S.

Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes

4y

Personally if you cannot analyze all aspects of the deal in under 5 min ( It takes me under 1 min in my market ) you really should not be doing deals alone, yet. Learn from someone doing deals, then apply what you learn

All the best to everyone .

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Ashton Cleveland

Rental Property Investor · Bend, OR · Member since 2016 · 27 posts · 26 votes

4y

Quote from @Lex Wilridge:

We talked about analyzing deals recently. I would love to hear your thoughts @Dustin Thomas @Account Closed

For buy and holds or STRS: The hardest part is always the expected revenues. The expenses can usually be nailed down pretty tight - and if you budget for repairs and CapEx items then the unexpected is already accounted for.

So the biggest question left is expected revenue. You can use things like the BP Rent estimator or AirDnA for STRs to get you close - but it always requires a little more digging. You need to talk to Property Managers or find your own comps within the area.

For value add (Flips/BRRRRs): Getting the rehab estimate right. You can do a lot of research and talk to multiple different contractors and end up with drastically different numbers each time. I think this takes the most experience and nailing down your systems to accurately forecast in the future.

2 Reply

Sarah Lev

Member since 2022 · 8 posts · 6 votes

4y

Quote from @Jeffrey Albaum:

Hi @Alicia Marks! I have found that I still struggle to nail down rehab costs. Although I get multiple quotes, I feel like I'm still constantly surprised by things that come up during the rehab. Biggest lesson I've learned is to always have way more cash than you think you need!

I totally agree with this one! I haven't done any deals yet, but I am doing my research. All I can say is that from experience in my own home growing up, where we remodeled three separate times, any rehab work was a huge headache. Contractors were unreliable and not motivated to get the job done. This was also in New York, where construction prices are super high. They often did sloppy jobs, wouldn't answer their calls, and showed up whenever it was convenient for them. I am sure there are good contractors out there, but be sure to do your research!

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Becca F.

Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes

4y

Quote from @Christian Ehlers:

I'd agree with @Jeffrey Albaum on this one. I'm not a very handy person and never worked construction or anything related to that field so it's been difficult for me to nail down rehab costs, even with all the general real estate knowledge I've gained from helping clients. Knowing when certain things need to be done and when they don't was also tough. To add to that starting out it was hard to get a busy contractor to come look at houses to give estimates before even giving a potential seller an offer because I had no idea of the costs.

For how to overcome it though I would say focus on finding a General Contractor as part of your core 4 if you aren't experienced in the field. Once I found a friend of mine who was a designer/GC that could eyeball photos to give a broad estimate, I felt confident sending out offers more quickly.

Curious what others have to say!

I recently did a renovation. I was able lucky to get a contractor to give me an estimate in February 2022, start work in March and finish in July. I'm in the San Francisco Bay Area so the contractor had to pull permits and the house had to pass electrical, plumbing, and a final building inspection. The initial estimate for 3 bedroom, 2 bath renovation was just over $156,000. All the old knob and tube wiring had to be re-done in every single room and hallway to be up to current safety codes. I had them do the interior repaint because I would have done a terrible job. The old textured walls and wood paneling are gone. Part of a wall was knocked down to open up the kitchen to dining room. Total rehab about $258,000. This is demo, hauling away old sheetrock etc, labor, all electrical, rough materials, new insulation, paint and inspections. This is not including the cabinets and quartz countertops and new bathroom vanities just under $8000 (all in-stock), faucet fixtures, and new kitchen appliances. It passed inspections. This isn't including exterior paint and landscaping the yard (which is a good size for the Bay Area), which I still need to do.

That sounds like a lot of money - I could have bought another house in another state for $258,000 but California properties appreciate at a higher percentage historically than other states. There's a highly paid workforce here with tech, finance and hospitals so they will pay $3000 a month for a 1 bedroom to over $5000 for a 3 bedroom apartment. So I hoping this goes well with my tenant search.

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Becca F.

Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes

4y

My challenge is a combination of the above listed poll choices but mostly analyzing CoC and financials. I'm still trying to figure out the best way to analyze ROI and all the terminology. I have a single family rental in the Midwest - it was my primary residence and I rented it out instead of selling when I moved (no renovations needed but I replace the AC/Furnace a year before I moved). I didn't want to sell it since I bought it for such a low price with a low interest rate. There is no way I could pay that kind of a price for a SFH anywhere in the U.S. now since home values have increased dramatically. I had a realtor friend analyze the numbers and she suggested that I sell it and buy a multi-unit building. She said my CAP rate and ROI wasn't great but a four- plex or an apartment building will cost more than what I paid for that house. The tenants are paying down my mortgage and it's cash flowing (not great but okay) so that's the positive part.

I also have a SFH in the San Francisco Bay Area which I renovated and will rent out. As far as analyzing financials, I don't want to overextend myself but don't want to miss out on a great opportunity to buy another rental.

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Lara White

Rental Property Investor · Oklahoma City, OK · Member since 2020 · 309 posts · 184 votes

4y

@Alicia Marks Estimating rehab has been a problem a lot of my clients have had recently. For example, we had a property under contract at $102,000 (single family residence). ARV was around $130,000. 3 different well known contractors had three wildly different estimates for the same scope of work. (#1- $12,000) (#2 - $24,000) and (#3 - $48,000!). Those aren't even remotely similar; so frustrating and confusing for my client. I would imagine the lowest bid was too low, and would have ran over budget (but it was the only one that would have gotten us enough to make the deal). And the third was probably a contractor that didn't want to do the job, or wanted to see if the buyer was a sucker and could be taken advantage of.

I would say Determining ARV is a close second though. It can be hard to get accurate numbers b/c so many people (EVEN investors!!) are just throwing whatever money they have at a property b/c they are so desperate to get something that they don't care, and it's making the comps wonky in some sub-markets.

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Alicia MarksPro Member

OP

Fort Worth, TX · Member since 2020 · 1k+ posts · 2k+ votes

4y

Quote from @Lara White:

@Alicia Marks Estimating rehab has been a problem a lot of my clients have had recently. For example, we had a property under contract at $102,000 (single family residence). ARV was around $130,000. 3 different well known contractors had three wildly different estimates for the same scope of work. (#1- $12,000) (#2 - $24,000) and (#3 - $48,000!). Those aren't even remotely similar; so frustrating and confusing for my client. I would imagine the lowest bid was too low, and would have ran over budget (but it was the only one that would have gotten us enough to make the deal). And the third was probably a contractor that didn't want to do the job, or wanted to see if the buyer was a sucker and could be taken advantage of.

I would say Determining ARV is a close second though. It can be hard to get accurate numbers b/c so many people (EVEN investors!!) are just throwing whatever money they have at a property b/c they are so desperate to get something that they don't care, and it's making the comps wonky in some sub-markets.

That is definitely frustrating! My realtor called me this morning because another property he has listed needs a new panel and wanted a referral. I have had quotes between $2500- 6700 for the same task of upgrading a panel. Huge difference for a single project, so putting those kinds of differences to scale really swings a budget all over the map.

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Osazee Edebiri

Realtor · San Jose, CA · Member since 2015 · 318 posts · 154 votes

4y

I would say I am pretty sufficient in all of those areas. What is currently killing me is the time it is taking to get to my next deal. I want to speed that up.

0 Reply

Alicia MarksPro Member

OP

Fort Worth, TX · Member since 2020 · 1k+ posts · 2k+ votes

4y

Quote from @Rodney Sums:

Quote from @Alicia Marks:

Welcome to our Question of the week! If you haven't voted in the poll, please do. We are talking about deal analysis this week. It seems to be challenging to commit to a deal if you aren't confident in your numbers. That can hold a lot of people back from solid deals. What part of analyzing did you (or do you) struggle with when evaluating a property?

Have a deal you're currently running or ran but passed on because you weren't confident in your analysis? Link your calculator analysis here for helpful, constructive, and nonjudgmental feedback! We are here to help you learn!

Never analyzed a deal before? Go to Tools<Calculators in the top tab to calculate your first deal! You can analyze 8 different investment strategies. You get 5 free to start, and a badge on your profile.

Let's get talking!

I selected Financials due to interest rates, property tax changes, and seller attitudes.

Do you feel that seller attitudes have shifted in the last few months?

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Ashton Hines

Real Estate Agent · Carrollton, TX · Member since 2022 · 29 posts · 19 votes

4y

I agree with being uncertain about ARV. When flipping I am looking at a possible 6mo timeline to close and it makes me want to buffer a lot in my calculations to account for a possible softening of the market. Then I wonder if I'm being too conservative and losing out on deals. My other problem along these lines is being temped to "number creep" in order to make a deal work to fulfill my desire to close. I have earned new respect for people with strict buy boxes that can pass on a deal that is close to working but simply doesn't.

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Neil Ginty

Architect · Bay Area, CA · Member since 2022 · 37 posts · 27 votes

4y

I feel like most things you can get a reasonable handle on with enough work but rehab costs are the one variable its hard to account for without adding serious contingency/buffer!! In the industry, 5% contingency is kinda typical but for the smaller multi-family / sfh investment property projects it nearly needs to be closer to 20%

1 Reply

Osazee Edebiri

Realtor · San Jose, CA · Member since 2015 · 318 posts · 154 votes

4y

Quote from @Neil Ginty:

I feel like most things you can get a reasonable handle on with enough work but rehab costs are the one variable its hard to account for without adding serious contingency/buffer!! In the industry, 5% contingency is kinda typical but for the smaller multi-family / sfh investment property projects it nearly needs to be closer to 20%

Yes, because unexpected repairs can offset numbers. I feel like with real estate if its a good deal your numbers might go from 5 to 20% in that one rehab category, but you will win in another like say unexpected appreciation over time. The longer you hold a property as long as it wasn't a really bad deal from the beginning the better it gets.

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QOTW: What is your biggest challenge when analyzing a deal?

QOTW: What is your biggest challenge when analyzing a deal?

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