Can someone guide me through the first step of analysis

Question

Hi I recently graduated from eastern Michigan and always wanted to get into real estate but didn’t have the time because of football. I was wondering if any one can teach me how to get started I have read books and been trying to start the analysis process but keep getting stuck not knowing what to do.

Drew Sygit · Answer

@Justin Jefferson first, some cold realty - you're about as likely to play in the NFL as you are to retire via real estate in 4 years.

Are they both possible? Yes, but highly unlikely:(

Anaylsis process is pretty simple.

To determine what to offer on a rental property:

• Determine reasonable market rent, NOT the highest!
• Deduct NEW property taxes after you buy
• Deduct home insurance costs
• Deduct maintenance percentage, typically 10%
• Deduct vacancy+tenant nonperformance percentage
(we recommend 5% for Class A, 10% Class B, 20% Class C, good luck with Class D)
• Deduct whatever dollar/percentage of cashflow you want

Now, what you have left over is the amount for debt service.

Enter it into a mortgage calculator, with current interest rate for an investment property, to determine your maximum mortgage amount.

Divide the mortgage amount by either 75% or 80%, depending on the required down payment percentage - this is your tentative price to offer.

If the property needs repairs, you'll want to deduct 110%-120% of the estimated repairs from this amount.

Be sure to also research the ARV and make sure it's 10-20% higher than your tentative purchase price.

As long as the ARV checks out, this is the purchase price to offer.

It is probably significantly below the asking price. Who cares? If you pay more, you won't meet your metrics and will probably have negative cashflow and/or equity.

You may have to make 10, 20 or even 100 offers to get one accepted at the price that meets your numbers.

This is what all investors did BEFORE the Great Real Estate Crash of 2008-2010.

----------------------------------------------------------------------------------------------------

If I had to start all over again, I'd look to acquire a 2-4 unit property with an FHA low-down payment mortgage.

Getting it under market value would be a bonus.

So, would using an FHA 203k renovation loan, which would allow me to buy something unqualified for a standard mortgage, which would weed out a lot of competition and push the price lower.

Hopefully, I would increase the value of the property in 1-2 years and be able to refi out of the FHA mortgage. I'd also learn a lot about maintenance and managing tenants.

Then, with my hands-on experience, I could decide if I wanted to repeat the process or target 5+ units - which my experience would help with lenders.

Good luck with whatever you decide to do!

Jaron Walling · Answer

@Justin Jefferson These forums are a free REI education. Take advantage of it, search old posts (learn from history), and read as much as possible because that's how you get unstuck and out of analysis paralysis. Like @Bruce Woodruff said you have to establish your goals and "why" REI or homeownership should be in your life. Owning RE isn't for everyone. There's zero shame in that. This market is challenging. People get wealthy all the time doing other things. There are numerous paths to wealth in this country; they can't all align with your goals. Don't let it discourage you.

Sometimes you have to jump. If you're financially stable, have an emergency fund, and have a buy [box] get into the trending C class neighborhoods and buy value. Buy a house walking distance from ____. Buy something close to parks, nature, trails, or outdoor venues. Buy a property you could live in and be proud to own. Ann Arbor is a great market. Grand Rapids is a great market (we just vacationed here and loved it!). Everyone is talking about Detroit lately.

You gave yourself 4 years?? You should 5x that number. You could grow a portfolio but will it be sustainable? Will you be over leveraged and broke? My wife and think about REI in 5 year chunks. We don't rentals we wouldn't own for 5 years. We rent and treat our tenants great expecting them to stay for 5 years. The path is way longer than you think.

Bruce Woodruff · Answer

Some great advice there ^^^^^^ @Justin Jefferson

@Drew Sygit wrote you a book that answers your original question.

I hope you both appreciate it, and take it!

Benjamin Aaker · Answer

Lofty goal, to be sure, but take it and work backward. What would you need to be doing each of the next 4 years to meet this goal? Would you be satisfied if you got 1/2 of the way there? 1/4? I would have been. Chunk that goal down into what you need to be doing this month, this week, and today.

For now, it's learning. Read every book you can on different niches of investing, at least one per month. Go to one meetup a month to network. Ask your questions here.

Once you have a niche (this can change), start finding and analyzing deals in it. While doing all these things minimize your expenses and save as much of your income as you can. Keep your W2! It will help you get loans for now.

Nicholas L. · Answer

@Justin Jefferson

-start with a house hack

-read up on how to house hack

-call a lender and ask about owner occupant loans for small multifamily

Bruce Woodruff · Answer

Well, IMO you need to take another look at your goals.....You want to retire by replacing your W2 income in 4 years? Unless you are starting with a huge amount of cash, that is going to be tough. Worse than tough actually.

I would love to see your Excel spreadsheet with the numbers on that path.

Well let's see what others think. What do I know....?

Bruce Woodruff · Answer

Welcome! First you need to identify your goals. Of course making money is on that list, but more importantly, address the other goals which are just as important. What/how/where/why/etc..

What type of REI interests you? Why? How do you propose to get started? What is your end-game reason - it can't be just about the $$.

You're in the perfect place here on this forum.....ask questions, lots of them...

Justin Jefferson · Answer

Hi my goal is to also create ownership and build my assets for the future. I have a job with steady income but I want to stop working by the age of 27. I am 23 currently. Right now I want to invest in a multifamily or single home family and buy and hold it. Then later I want to get into flipping houses. But I just don't know where to start. I've been stuck on trying to analyze and find deals but it gets very complicated trying to understand how to analyze a great deal for me.

Can someone guide me through the first step of analysis

Most Popular Reply