Are there investors out there that rely on others to find deals?

Question

I read Gallinelli's books and bought his REIA  Excel software. I love it! I also built my own tool (basically reverse  engineered Gallinelli's in order to make sure I understood exactly what  it was doing behind the scenes). I've become obsessed with analyzing  investment opportunities with it.

Is there a market for doing this  type of analysis for investors? I could see putting together reports  with the financial measures, including "worst case," "best case," and  "best guess" scenarios. And also including area comps for comparison.  Would investors be interested in paying for reports like this? It would  eliminate the need to look up comps, find rent values, occupancy rates,  local property tax rates, etc. I've been doing this for SFH, multi-family, and Airbnb opportunities. So fun!

Andrew Johnson · Answer

@Jason Heidecker Not to answer in the most obvious sense but the answer is 'yes' and 'no'.  I think a lot of investors have built their own tools, use the BP Calculator, etc.  It sounds like you've done the same.  The biggest challenge that I would have is basically outsourcing the analysis.  This isn't exactly a fair analogue, but here's why: the Zillow's of the world look at a ton of different data (including comps) to figure out their Zestimate.  Each o' the big branded real estate search engines have their own version, algorithm, etc.  The same can be said for the sites that do rent estimations or AirDNA for STR/vacation rentals.  The payment calculators in each of the big sites also has estimates for property taxes and insurance.  If I wanted to look at different property tax scenarios I guess I could play around on SmartAsset.

If I did want to pay for a service I could probably use Zilpy and see how it goes, they purport to have data on vacancy and renter density.  Is it accurate?  I don't know.  But then again I wouldn't (as an outsider) know if your data is any better or worse either.

Bottom line: If I *want* to outsource my diligence, let someone else choose comps, etc. there are really simple places to go.  And it doesn't take me long to put data into a spreadsheet.  So what's the marginal value of a report for me?  $5?  Pay $9.99/month for a "second opinion" using your product?  I'm really not sure.  I honestly don't exactly trust the values, numbers, estimates that are already present in the Zillow, Realtor.com, Trulia, etc. ecosystem.  In a way, I'd have to assume you're more competent in your analysis that their team(s) of engineers.  Consequently, if I don't trust *their* tool I have a hard time thinking that I would trust yours.  By the way, that's not to say you're not more talented than the best Zillow engineers but how the heck is little ol' me in San Diego supposed to know that before buying your product?

Really, the only way for you to figure it out is to launch a free version or create accounts that will do the first 10 reports free.  See who converts to a paid user because it becomes a must-use tool for them.

Kevin Lefeuvre · Answer

I agree with what Andrew and Jeff said but I am going to say it in a different way: Absolutely there's a market for that but since those who have tried failed there's a trust issue.

Just take the simple example of the cap rate calculation. Years ago I had my excel table for that. Then MLS and loopnet added them and they are even sortable. Then sites such as revestor.com and many more integrated them. Guess what I still use my table  (the only difference is that it's now Google sheet :) ). Why? Because I tested out the tools and found each time big issues, most of the time due to the quality of the initial data, that automated tools don't detect, but an experienced investor does. Even if the issue is on 2 properties out of 10, well they maybe exactly those rare opportunities that other investors overlooled.

Same for Airdna or mashvisor.

These tools are even dangerous because they present the results in such a nice professional way that a novice investor will trust the quality of the visuals, regardless of the quality of the underlying data that they ignore.

The latest in the series is roofstock.com.

So yes investors need the tools and others have already tried but you'll have hard time convincing users that yours are good , (i.e. your client acquisition cost will be high),  all the effort being for a small value add. (Your ROI is low and slow).

Jeff Filali · Answer

Why would someone pay for someone else to just analyze deals, when its simple to do themselves.  Plus, even if someone else offered the info, which 99% of anyone trying to sell a property to investors do this already, I'd still be inclined to run my own numbers every time to verify the info.

Andrew Johnson · Answer

@Jason Heidecker I think you're on the right track.  I think most new investors are always looking for a "template" or some kind.  A lot of them here (on BP) gravitate towards the BP Calculators.  I'd also posit that a good number of their Pro subscriptions come from people wanting increased access to that that calculator.

That aside, what I think the ecosystem would get more value from is averages around property management fee structures by zip codes.  I have no idea how the heck you could scrape that information but the "newbie investor" that's looking at 8 different cities usually doesn't have easy access to a matrix of property management fees.

And I still think tools for vacation rentals are still lacking.  The challenge there is that it's also regional.  Look at the Gulf Coast and you have homeowners insurance, flood insurance, wind insurance, challenges around full-replacement value (or capped) insurance plans, etc.  For the "new" investor that doesn't know you need to spend another $7K per year in wind insurance or that they have to add costs to turnover furnishings, pay for internet, pay for DirecTV, etc. it's usually a rude awakening.  If you don't think about "Oh wait, tenants want HBO!" you can get some weird added costs at the 11th hour.

Anyway, I'm rambling. but that's where I see some gaps in the market.

Jason H. · Answer

@Andrew Johnson, Thanks for the detailed reply. In light of this, I guess the target demographic is not professional investors, but perhaps people who have heard that rental properties are a good investment, but aren't investment/finance saavy enough to do the analysis themselves.

The idea to offer 10 reports for free and see who pays after that is an excellent idea.

Josh Caldwell · Answer

Yes, that is the world of the wholesaler or acquisition.  The first if you put your contract on the property first and the second if you are just doing bird dog type work. The next step after that is to get into the world of providing turn key investments to other investors.

Are there investors out there that rely on others to find deals?

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