Used the BP Calculator...Now what???

Question

I've been analyzing properties for practice using the calculator provided on BP.  Basically just choosing some that are on realtor.com and MLS in order to get familiar with the numbers/terms. I'm just not sure what the next step in the analyzing phase is. You use the calculator, then what? If the numbers worked out, would you then go look at the property? Ask the sales agent/owner for certain information?

I'm not quite sure how deep the process should be before it would be intelligent to make an offer. I know at some point I need to request more data (tax records, vacancy and maintenance info, etc) but I guess I'm unsure of when I should be looking at this - before ever making an offer or after making an offer and during the due diligence period?

Any advice would be very appreciated!

Anton Ivanov · Answer

@Jennifer Brown

I always start my analysis top down - analyze the market, analyze the neighborhood and then analyze the actual property. The city/neighborhood you buy will have more impact on your performance than the actual property, so don't skip that step.

As far as evaluating actual homes, here is what I typically check other than cash flow projections:

• Price: Your available cash savings will determine the maximum purchase price of the home. A typical loan requires a down payment of 20% - 25%, so take your savings and multiply them by 4 or 5 to get your max purchase price. For example, if I have $20,000 in the bank, I will be able to buy a property for about $80,000 - $100,000.
• Location: Even if you pick a great city and neighborhood, the precise location of the home matters as well. Most tenants prefer quite, residential blocks and streets. You may want to avoid purchasing homes at busy intersections or near loud highways, businesses or venues. Also consider the topology of the land. Homes at the bottom of a valley may have water drainage problems, while those on a steep slope may have foundation issues if the ground moves.
• Year Built: I avoid homes older than 50-60 years, so if it was built before 1950, I will likely skip over it. Older homes will almost always have more maintenance issues, regardless of any rect rehabs. Additionally, older properties may have used poor or unsafe construction materials (like asbestos), which you may have to replace.
• Beds/Baths: Different areas will have different prevailing bedroom and bathroom configurations. While there will probably be demand for a variety of houses, I prefer to buy rentals that are average for that particular neighborhood. This is because, for example, if an area tends to attract middle-class families, it may be more difficult to rent out a 1 bedroom condo.
• Square Footage: My view on the size of the property is similar to the one expressed above - I like "average" houses that are not too large and not too small to appeal to the largest possible group of prospective tenants.
• Layout: Get a floor plan from the listing agent, if they have it, or look at the photos to get an idea for the layout of the house yourself. Focus especially on the kitchen and bathrooms, which should be functional and large enough to satisfy most tenants. Avoid properties with weird layouts, small or dysfunctional kitchens or other noticeable problems.
• Parking: In order of preference, tenants prefer garages, covered parking or at least assigned off-street parking. A house with only street parking will likely be harder to rent in most areas.
• Yard: Most houses will have at least some front or back yard. I don't have a particular preference on the size of the yard, but I do prefer if it is fenced in. I also avoid properties with any sorts of yard amenities or complex landscaping, including pools, fountains, fruit trees, etc.
• Construction Material: Most city blocks are built using similar construction materials, but there may be exceptions. Brick homes tend to last the longest, but may require very expensive structural repairs as they get older. Wooden homes are cheaper to repair, but can have pest infestations.
• Flood Plane: You can look up a property's potential flood information on FreeFlood.com. Their report will tell you if the property is in a flood plane and which level of flood plane it is. You may want to avoid buying properties in areas that are prone to flooding or at least think about purchasing additional flood insurance.
• Property Photos: Avoid properties that do not come with pictures. If you're unable to see the property yourself, this will be one of your only sources of information.

Most of the above information can be obtained from the MLS or public records, except when noted.

Chris T. · Answer

@Jennifer Brown

After you have determined what your criteria is - in terms of the numbers, let your agent know. Go see a property with someone who's experienced, or a contractor you trust.

Don't get paralyzed with over analysis.

Partner up with someone experienced will help you get to the first deal as well.

Tom Brooks · Answer

We have seen $5,000 annual reductions on individual residential properties. More in multifamily. I can provide examples.

@Chris T.

Chris T. · Answer

@Tom Brooks

Just curious, how successful have you or your clients been in regards to flood mitigation?

It seems the risks are too high, in order to consider a property in a flood zone. However, this is also a reason to consider such properties since most investors would avoid them.

Tom Brooks · Answer

If the property is in a flood plane there might be an opportunity to reduce the insurance costs through flood mitigation, a LOMA or other means. I can direct you to a team of Certified Floodplain Managers that can review elevation certificates and potentially help you reduce costs. Good luck!

Used the BP Calculator...Now what???

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