At a roadblock and could use some help with market evaluation

[Salvator Lorick]

Hello everyone Happy 4th,

I see a lot of advice on how to analyze a deal, how to close a deal and a lot of other amazing advice. But there are some steps that need to be taken before you even begin to analyze that property. I believe that this is where a lot of us new investors get stomped because know that we have an idea on how to invest, we go out looking at all of these properties but we really have no idea where to look. So I guess my question is what are some simple techniques that are being used to evaluate a potential market and submarket? what websites are you using? who are you calling? what kind of questions did you ask when you called? etc etc etc

Thank you in advance to all who reply. Your answers and help is truly appreciated

[Randall Alan]

My simple technique is to do some pro-forma (sample) calculations to know what to target.  Pick 3 levels of properties and run the numbers.  Find an average $50,000 property, a $100,000 property, and whatever else... maybe a $200,000 property (use numbers for property sizes that interest you / your budget that are for sale in your area)

Next look up the taxes on those properties in your county property appraiser's website.

Next use a simple mortgage calculator (I use google's - search  "mortgage  calculator") put two spaces in between the words though (bigger pockets won't let me do that in this message interestingly!)... that will help you find the google one, versus the website titled that whose calculator is much more complex.

The only thing you are lacking a that point is an Insurance figure.  You can use a generic one for the basis of simplicity, but you can have your local insurance person give you an closer estimate...  In my area with hurricane premium included it's about $800 for the cheap property, and about $1,200 for the mid property, and about $1,800 for the expensive property.  

With those numbers you can determine your PITI (Principle, Interest, Taxes, and Insurance) expenses - which make up your core mortgage payment.

After that you will want to include some sort of maintenance reserve.  We use $100/ property.  On the high end you might want to use $150.  

So now you have what I call your "all in monthly cost" of your properties.

Next: What can you rent them for?  This is pretty easily figured out by going to someplace like zillow rentals, or apartments.com and selecting "houses" and looking at what things are renting for.  Pick several houses in each size of the one you targeted and look at what they are getting for rent per square foot.  In our area it's like $1 to $1.15/sf. for smaller houses, but it slopes down as you get bigger... so the big house might be a $0.90/sf or something.

Heading for the finish line, you can now take your approximate rental income based on the $/sf figure you just found, and subtract your "all in" expense to determine your pro forma monthly cash flow for the property.  

Real quick you will see which type of property performs the best.  Secret - It's not the biggest one!  But use your numbers as the basis for what properties you want to target.  This will quickly let you set filters in Zillow, or wherever you search for listings to only target the ones that will perform best for you.  If you find out $50,000 houses rock, you can ignore all the $100,000 listings you see, thus making you much more efficient at searching for deals... but keep in mind you can always offer less on properties, so I wouldn't set it straight up at $50k if that was what you were targeting. 

All the best!

Randy