Newbie: How to practice analyzing properties?

[Alyssa McEwan]

Hi guys,

I’m new to investing and currently House Hacking my first property. I am preparing to purchase my second property by studying and learning as much as I can of different strategies while I explore the possible finances.

In the meantime, I would like to practice analyzing and spotting good deals for when the time comes of having the finances to snag a property.

Any advice on where to start or begin? What are the tools I should be using or analyzing strategies that have worked for you?

[Jim K.]

@Alyssa McEwan

I know this is overwhelming at first. One of the perennial starting points is to map out a local target area, an area you THINK you might be interested in investing in, and explore it thoroughly. This area should all be in one ZIP code and preferably in one school district. It shouldn't be larger than two square miles in an urban area, five squares miles in a suburban area. Go to Google Maps and print out a four or eight-sheet color map of that area. This should be zoomed in to the maximum in Google Maps, large enough so that you can see the footprint of the individual buildings. Assemble the map on posterboard and hang it in whatever area you will be doing your reading and studying in. Next to your home computer work area is the norm.

If it's an urban area, start taking walks through it. If it's a suburban area, start driving through it. Look at each of the houses. Make notes in a notebook, bring them home and transfer them to your map. Find out the local systems for recording deeds and ownership. Look up all the properties you noted on a walk on Zillow.com. Pay attention to traffic patterns, local points of interest, convenience stores, access to highway networks, school proximity, churches, playgrounds, everything and anything in the target area. Find out local source of real estate information. Try to understand WHY some properties are better/more expensive than others. Learn the local history of the area. How has it changed in the last twenty years? Spend your free time refreshing your memory about the area's topological features with Google Maps and Google Earth. Big hill? Beaten-up road? Eroding cliff or ravine? How will that affect snow-clearing in winter? What's the area going to look like in five years?

And of course, attend open houses in that target area and scrutinize any and all marketing pictures you find still up online at Zillow and other sources from previous sales. What are people buying in the area and what prices are they paying for it? Why did THIS property sit on the market for 160 days, why did THAT property move in two weeks?

Once you get an area down cold, expand to a neighboring area. New map, new walks or runs through. Perhaps a new school district. Analyze, analyze, analyze. I honestly know no one who's made real long-term money in residential real estate who hasn't gone through this intensive experience with at least one neighborhood, and usually on foot if the area is in a city.

Ultimately, you may decide the area is too expensive, or too rundown, or too far away from you, something, anything makes it wrong for you. You may decide to start investing out of state. It doesn't matter. Getting that intensive local experience, figuring out what makes an area you know very well really tick at least once, that's a big part of how you really start understanding certain real estate concepts.

This is part of a process. I would very much also suggest you do what @Craig Cureloprecommends. Make a commitment to read and study about real estate as much as you can. Set up a reading schedule. Watch videos and listen to podcasts. Most agents these days will be happy to set you up with the MLS search emails for new listed properties, what Craig recommends above. I still have one doing it for me in my target area, and I still look at those places ALL THE TIME. Again, GO to open houses. Look at those marketing shots online carefully. An open house is where I met my own "hungry agent," the first guy I worked with who set me up with my MLS emails.

In the end, you might decide your first analysis area isn't for you. I did. Again, it doesn't matter. The experience you will have gained understanding an area will be one of the things that sets you apart from newbies with no clue blindly casting about for a property, any property, trying to grapple with a lot of things at once and getting nowhere.

Good luck!