Methods for analyzing deals

[David Cowan]

I'm noticing it takes a lot of time to analyze deals. If I come home with 10 houses I've found while driving for dollars, it takes me 3- 5 hours to research the properties for comps and locate owners. Seems like it's better to locate prospective seller first and then make the phone call before spending the time to collect all the rest of the data. I spend a lot of time analyzing the data because I've noticed that a lot of wholesalers aren't very good at picking deals because they don't thoroughly research the properties.  For example, I found a property on craigslist and called the number just to find that it was a wholesaler who had it under contract trying to sell it with only 75k spread, as a cash flowing rental property. Problem is the house has some permit issues with the units and is in mostly original condition and needs a good deal of work despite the fact that both units are rented out.

I had lots of questions about the property for which he had no answers. I had intended to refer him to an investor on my list if the numbers worked out. But, alas..they did not. Not as a rental..and not as a rehab for the price he contracted it for.

So...how long do you spend researching deals?

[Levi T.]

I know not everyone will agree with this method, especially the SFH buyers, but what I do is a bit of quick math like so; take the yearly gross rents and divide it by your preferred gross return rate. I have a floor or 13% as I know that's going to put me around the 10% mark after expenses, normally. I target 15%, but always try for 17% or above.

Keep in mind I'm looking for rents and value. I don't care about flipping or if the property is worth 10x more than I paid, I'm buying for rental income, so property values is always controlled by this. My property types are B-C properties, and I buy 7-70 units type deals normally, apartments or strings of townhouses. I'm starting to do a lot more C types now of days, because of experience in handling them, and I can clean house on the returns.

If a unit rents for $900 mo, it earns $10,800 before expenses per year. $10,800/.15 = $72,000 offer price. This is what I use for the "on the spot" call to give general pricing, I'll then sit down with my excel and do the real numbers later. This will work on a single unit, but I also use it on multi units more than anything.

Example; I just did a 7 unit deal with rents of $875 per unit.. $73,500/.175 = became the winning offer.

Later on while doing my DD, I ran in through my excel, check taxes, called on insurance quotes, subtracted year 1 repairs, etc, to insure I had a great deal that I though I had.

Another option is just to build an excel based on averages, then just plug the data in when chatting. I've got one of those for myself, but I like the above as it just keeps me in check when free styling on a call, and I can walk alway knowing the verbal offer I agreed to is good if the seller was truthful about property condition and rents.

Hope that helps a little.